Servicing

Four classes of notes issued by Prudential Structured Finance CBO I, which are supported in part by residential mortgage-backed securities, have been downgraded by Fitch Ratings.The downgrades were as follows: classes B-1L and B-1, from CCC/DR3 to C/DR3; and classes B-2L and B-2 notes, from CC/DR5 to C/DR5. In addition, two classes were upgraded and the rating on one other class was affirmed. Fitch attributed the downgrades to "the continued expectation of low recovery estimates for several distressed securities." The transaction, a collateralized bond obligation, is supported by a portfolio of RMBS (61.3%), asset-backed securities (31.7%), and collateralized debt obligations (7%).

NovaStar Financial Inc., a residential mortgage lender and portfolio investor based in Kansas City, Mo., has announced that its subsidiaries NovaStar Certificates Financing Corp. and NovaStar Mortgage Inc. recently securitized $1.2 billion of nonconforming mortgage assets.The transaction, NovaStar Mortgage Funding Trust series 2006-MTA1, offered 14 rated classes of notes with a face value of approximately $1.18 billion, NovaStar reported. NovaStar Certificates Financing LLC, an affiliate of NovaStar Mortgage, retained the M-8 and M-9 notes as well as the M-10 notes, which were not covered by the prospectus. NovaStar Certificates Financing Corp. retained the class C certificates, which entitle it to overcollateralization amounts and excess spread, and the trust certificates, which are also not covered by the prospectus. Greenwich Capital was the underwriter of the securitization. NovaStar can be found online at http://www.novastarmortgage.com.

Fannie Mae has priced $4 billion of 5.250% two-year Benchmark Notes and $3 billion of 5.375% 10-year Benchmark Notes.The two-year note (CUSIP 31359MS53) was priced at 99.963 to yield 5.27% at a spread of 26.5 basis points over the 4.875% Treasury due in May 2008. The 10-year note (CUSIP 31359MS61) was priced at 99.974 to yield 5.379% at a spread of 40.5 bps over the 5.125% Treasury due in May 2020. The joint lead managers for the two-year issue are Barclays Capital Inc., HSBC Securities (USA) Inc., and Morgan Stanley & Co. The joint lead managers for the 10-year issue are Lehman Brothers Inc., Merrill Lynch Government Securities, and J.P. Morgan Securities Inc. Fannie Mae can be found online at http://www.fanniemae.com.

Zacks Equity Research, Chicago, has made H&R Block its "Bear of the Day" -- a stock expected to underperform the markets over the next three to six months -- for June 13.Block is the parent of Option One Mortgage Corp., and recently reported earnings of $490.4 million ($1.49 per share) for its fiscal year, down from $623.9 million ($1.88 per share) for the prior year. Earnings for the quarter and the year were hurt by an after-tax charge of $6.4 million ($0.02 per share) for a restructuring of the mortgage operations. In a brief statement, Zacks said, "as expected, earnings in fiscal year 2006 were at the low end of previous guidance. Competition remains intense in the tax business, while fundamentals in the mortgage business continue to deteriorate." Zacks can be found online at http://www.zacks.com.

The values of U.S. commercial real estate properties in coastal areas may suffer -- and affect commercial mortgage-backed securities -- as insurance companies reduce loss exposure to hurricane-prone areas, according to Fitch Ratings.Joseph Kelly, a Fitch senior director, said CMBS servicers have noticed a "sharp increase" ranging from 25% to 400% in windstorm and flood insurance premiums since the beginning of hurricane season. "This may present a problem for commercial real estate properties where premium increases cannot be passed through to tenants," he said, "and in fact the resulting value decline may be severe enough so a property can no longer support its full debt service, increasing the likelihood of payment default." Besides premium hikes, insurance companies may raise deductibles, reduce coverage amounts, or drop coverage altogether, Fitch noted. "Fitch's chief concern is that windstorm insurance along coastal areas may become commercially unavailable, possibly echoing in severity the terrorism insurance issues of late 2001/early 2002," said Patty Bach, a Fitch senior director. Fitch can be found online at http://www.fitchratings.com.

Only a handful of reverse-mortgage securitizations have been done so far, but conditions are "ripe for the market to explode," according to a new report from Standard & Poor's Ratings Services."As this product continues to evolve, investors will become more comfortable with reverse-mortgage securitizations," said credit analyst Waqas Shaikh, a director in S&P's Residential Mortgage group. "This in turn will lead to more securitizations backed by these loans. In addition, the secondary markets will continue to add certain efficiencies to the process, reducing the costs associated with originating reverse mortgages." The report, titled "For Seniors, Equity Begins at Home," says reverse mortgages do pose risks, however. Obtaining such a mortgage means that homeowners begin accumulating debt again after years of paying down their mortgages. Moreover, as interest accrues, the borrower's equity continues to decline, reducing the potential inheritance of the borrower's heirs. "For lenders, the risk is that the principal outstanding, together with accrued interest for the loan, could exceed the value of the home," said Terry Osterweil, a director in the Residential Mortgage group and a co-author of the report. S&P can be found online at http://www.standardandpoors.com.

Class B-1 of Birch Real Estate CDO I Ltd./Birch Real Estate CDO I Corp., a collateralized debt obligation consisting mainly of residential mortgage-backed securities, has been downgraded from BBB to BB by Fitch Ratings.The ratings on five other classes of notes in the transaction were affirmed. Fitch attributed the downgrade to "steadily eroding" par coverage due to a newly defaulted asset and lowered recovery assumptions for distressed assets. Approximately 81% of the transaction is composed of residential MBS, while commercial MBS and asset-backed securities account for approximately 12% and 7%, respectively.

Two certificates from CSFB manufactured housing pass-through certificates series 2002-MH3 have been downgraded by Moody's Investors Service.Class M-2 was downgraded from A2 to Baa2, and class B-1 was downgraded from Baa2 to Ba3. The transaction is backed by manufactured housing loans originated by CIT Group/Sales Financing Inc., and Moody's said performance has been weaker than expected. Moody's can be found online at http://www.moodys.com.

Foreclosures have been rising sharply in South Florida since January, with Broward County topping the list with a 50% increase, according to Default Research Inc., a foreclosure research company based in Mt. Pleasant, Pa.Palm Beach ranked second, with a 37% increase in foreclosures since January, and Miami was third, with 30%, the company said. "Investors are shying away from the Eastern coast and focusing on the Gulf coast, which has seen significant decreases in 2006," said Serdar Bankaci, president and chief executive officer of Default Research. The company touts the timeliness of its foreclosure data, which it says arrive two to three weeks ahead of competitors' data. Default Research can be found online at http://www.defaultresearch.com.

Class M-3 of RAMP mortgage asset-backed pass-through certificates, series 2003-RP1, has been downgraded from BB to CCC and assigned a Distressed Recovery rating of DR3 by Fitch Ratings.In addition, the ratings on three other classes in the deal were affirmed. The downgrade reflects a deterioration in the relationship between the bond's credit enhancement and expected losses, Fitch said. Over the past 12 months, losses have exceeded excess spread, resulting in a reduction of the overcollateralization amount, the rating agency said. The collateral in the transaction consists of fixed- and adjustable-rate residential mortgage loans secured by first and second liens.