Servicing

Five classes of Asset Backed Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings, and two have been assigned Distressed Recovery ratings.The downgrades were as follows: series 2001-HE1, class M-2, from BBB-plus to BBB-minus, and class B, from BB to B-plus; series 2002-HE2, class B, from BB-minus to CCC; and series 2003-HE1, class M-3, from BB to BB-minus, and class M-4, from BB-minus to C. Class B of series 2002-HE2 was assigned a Distressed Recovery rating of DR2, and class M-4 of series 2003-HE1 was assigned a rating of DR5. (The ratings range from DR1, the highest, to DR6 to designate a transaction's recovery prospects.) In addition, Fitch upgraded two classes and affirmed the ratings on four classes in four ABSC deals. The rating agency attributed the downgrades to a deterioration in the relationship between loss expectations and credit enhancement. The transactions consist of fixed- and adjustable-rate subprime mortgage loans on one- to four-family properties. Fitch can be found online at http://www.fitchratings.com.

Twenty-two classes from 12 Morgan Stanley mortgage-backed security transactions have been downgraded by Fitch Ratings.In addition, Fitch upgraded three classes and affirmed the ratings on 59 other classes in 19 deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The loans consist of fixed-rate and adjustable-rate mortgages extended to subprime borrowers and are secured by first and second liens, primarily on one- to four-family residential properties, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The Financial Accounting Standards Board has voted six-to-one to exempt regular collateralized mortgage obligations, on a preliminary basis, from Financial Accounting Standard 155, according to an RBS Greenwich Capital report."This is good news for the liquidity of the CMO market, as well as other 'prepayable' securitized products such as auto ABS," said Alec Crawford, a mortgage strategist at RBS Greenwich Capital. The decision is "positive" and "critical for the mortgage markets," as it addresses "what appears to be an inadvertent accounting charge for certain asset-backed securities," said Charlie Gilman, the American Bankers Association's accounting policy adviser. "That said, we are reviewing the problem to determine how much of the problem it alleviates."

Class B-3 of Specialty Underwriting & Residential Finance asset-backed certificates, series 2005-AB1, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also upgraded two classes in two SURF transactions and affirmed the ratings on 26 classes from four SURF deals. The negative rating action was attributed to monthly collateral losses that have caused a deterioration in the overcollateralization. SURF acts as program administrator for the seller, Merrill Lynch Mortgage Lending Inc., and its loan acquisition program facilitates the purchase by the Merrill Lynch company of eligible nonconforming loans from various SURF-approved originators, Fitch said.

Class B1-A of Cityscape Home Equity Loan Trust home equity loan pass-through certificates, series 1997-C group 2, has been downgraded from BBB to BB by Fitch Ratings.Fitch also affirmed the ratings on 12 classes in two Cityscape subprime securitizations. The downgrade was attributed to a deterioration in the relationship between credit enhancement and loss expectations due to higher-than-expected delinquencies, the rating agency said. The rating agency can be found online at http://www.fitchratings.com.

Freddie Mac has announced the settlement of a $4.0 billion, 30-year, 6% Gold MACS Strip security.The weighted average coupon of the issue (CUSIPs: IO 31282YSS9, PO 3128HWC62) is 6.57%, and the weighted average loan age is two months, the government-sponsored enterprise reported. The lead underwriters of the transaction were Banc of America Securities and RBS Greenwich Capital. Freddie Mac can be found online at http://www.freddiemac.com.

Those counting on business from adjustable-rate mortgage loans refinancing in 2007 need to pay heed to the latest statistics cited by Mortgage Bankers Association chief economist Doug Duncan.The MBA is predicting $2.12 trillion in production in 2007, down from a projected $2.46 trillion for all of this year. Refinancings will fall from $1.07 trillion in 2006 to $807 billion next year. Mr. Duncan told attendees at the MBA annual convention in Chicago the best estimates indicate that between $1.1 trillion and $1.5 trillion of ARMs will reset in 2007. There are three possibilities for those loans: refinancing, going into default, or resetting. Mr. Duncan said he thinks just $600 billion to $700 billion will refinance (which is already accounted for in the MBA's projection, he added). As for defaults, Mr. Duncan said many of those ARMs have already reset at least once, and the biggest threat of default is on the first reset. The remaining $500 billion to $800 billion of ARMs will just reset, he said. The MBA can be found online at http://www.mortgagebankers.org.

Class B4 of CSFB Mortgage Securities Corp. mortgage pass-through certificates, series 1997-2, has been downgraded from CCC/DR2 to CC/DR2 by Fitch Ratings.Fitch also affirmed the ratings on seven classes from series 1997-2 and another CSFB issue. The downgrade was attributed to the deterioration in the relationship of credit enhancement to loss expectations.

The residential primary servicer ratings of American Home Mortgage Servicing Inc. for prime, alternative-A, and home equity/home equity lines of credit products have been upgraded from RPS3 to RPS3-plus by Fitch Ratings.Fitch attributed the upgrades to operational and technological improvements to the company's servicing platform. As of June 30, AHMS serviced nearly 208,000 loans with an unpaid principal balance of over $43.5 billion, the rating agency said. AHMS is a subsidiary of American Home Mortgage Investment Corp., a real estate investment trust based in Melville, N.Y. Fitch can be found online at http://www.fitchratings.com.

Doral Financial Corp., the troubled mortgage lender based in San Juan, Puerto Rico, has reported a net loss of $33.8 million ($0.47 per share) for the first six months of 2006.Noting that it has filed its Form 10-Q for the period with the Securities and Exchange Commission, Doral said the loss reflects "significant" restatement- and re-engineering-related expenses; an $8.2 million charge related to the restructuring of certain prior transfers of mortgage loans to local financial institutions; and a $12.3 million charge related to the transfer of some mortgage loans held for sale to its loan receivables portfolio. In September, Doral announced an agreement with the SEC under which the mortgage lender will pay a $25 million civil penalty in connection with the SEC's probe of Doral's restatement of financial results for 2000-2004. Doral said it had agreed, without admitting or denying any wrongdoing, to be enjoined from future violations of certain provisions of the securities laws. Doral's restatement slashed $694.4 million from its retained earnings through the end of 2004 to correct the accounting for certain mortgage loan sales and the valuation of its interest-only strips. In March, the company signed consent orders with banking regulators that restrict its payment of dividends and require it to review its mortgage portfolio and submit plans on maintaining capital adequacy and liquidity. Doral can be found online at http://www.doralfinancial.com.