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Two classes of Structured Finance Advisors Collateralized Asset Backed Securities Trust II CDO Ltd. have been downgraded by Fitch Ratings.The class notes were downgraded from BB to B, and the class C notes were downgraded from CC to C. The triple-A rating on class A was affirmed. SFA CABS II is a collateralized debt obligation supported by residential and commercial mortgage-backed securities, asset-backed securities, and CDOs, Fitch said. The downgrades were attributed to the declining credit quality of the collateral and the decline in the coverage of the notes, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Capital One Financial Corp., McLean, Va., is buying North Fork Bancorporation in a cash and stock transaction valued at $14.6 billion.Under the agreement, North Fork shareholders will receive $31.18 per share, which represents a 22.8% premium over the closing price of North Fork shares on March 10. The combined company will have a managed loan portfolio of more than $143 billion and more than 50 million customers. GreenPoint Mortgage Funding, a subsidiary of North Fork, was the 20th-largest originator of home loans through the first nine months of last year, with funding volume of $32.9 billion in that period.

Fitch Ratings has announced that it will adjust its treatment of interest-only affordability features on two- and three-year subprime hybrid adjustable-rate mortgages to reflect higher odds of default.Fitch analyzed the payment shock potential for 2005 subprime IO and non-IO ARMs and found that the payment increase for an IO at the rate reset is "significantly larger than the increase from principal amortization and is high even if rates do not rise due to the high margins and low initial rates." The credit performance of subprime IOs has been strong due to a favorable economic climate, but newer vintages "may not exhibit the same strong performance because more borrowers could face a payment increase as home price appreciation slows," said Fitch director Grant Bailey. Subprime borrowers are sensitive to the rate of home price appreciation because they tend to use accumulated home equity to pay off additional debt to lower their debt-to-income ratio. "If their DTI is too high to qualify for a new mortgage before the rate reset, they become vulnerable to payment shock risk," Mr. Bailey said. The report, "Rating Subprime RMBS Backed by Interest-Only ARMs," is available on Fitch's website at http://www.fitchratings.com.

Freddie Mac, which is still toiling with the remnants of a $5 billion accounting scandal, will release full-year 2005 earnings in May.On March 30 the company will provide a quarterly market update on its business, but will not release earnings estimates, according to a spokesman for the government-sponsored enterprise. In August the congressionally chartered mortgage giant released first-half 2005 earnings, but then restated those numbers a few months later. Its chief competitor, Fannie Mae, last reported earnings for the second quarter of 2004. Fannie Mae is expected to revise past earnings downward by about $11 billion. Freddie has restated upward by $5 billion.

Mortgage companies trimmed 2,900 full-time employees from their payrolls in January, marking the third consecutive month in which employment in the mortgage banker/broker sector has declined.The U.S. Bureau of Labor Statistics reported that employment in the mortgage industry declined from 500,700 in December to 497,800 in January. The decline in industry jobs occurred even though the 30-year mortgage rate hovered near 6.00% in January and refinancings constituted over 40% of mortgage applications. Since then, mortgage rates have gone up and the refi business has cooled. But the purchase-mortgage market has remained strong. Friday's employment report shows that construction jobs increased by 55,000 in January and 41,000 in February. "What housing slowdown, right?" asked Stephen Stanley, RBS Greenwich Capital's chief economist. "Home sales may be slowing down, but builders have plenty of orders in the pipeline to keep them busy for a long time."

Three classes from three issues of CDC Mortgage Capital Trust mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2002-HE2, class B-2, from BB to B-plus; and series 2002-HE3, class B-1, from BBB-minus to BB-minus, and class B-2, from BB-plus to B-plus. In addition, Fitch affirmed the ratings on eight classes from three CDC deals. The rating agency attributed the downgrades to a deterioration in the relationship between credit enhancement and expected losses. The pools consist of fixed- and adjustable-rate subprime mortgages for one- to four-family residential properties.

Nine classes of United Companies Financial Corp.'s manufactured housing deals have been downgraded by Fitch Ratings.The downgrades are as follows: series 1997-3, class A-4, from BBB to BB-plus; series 1997-4, class A-4, from A-minus to BBB-plus; series 1998-1, class A-3, from AA-minus to A-minus; series 1998-2, class A-3, from AA to A-minus, class A-4, from BB to B-plus, and class M-1, from B-minus to CCC; and series 1998-3, class A-1, from BB to B-plus, class M-1, from B to CCC, and class M-2, from CCC to CC. In addition, Fitch affirmed the ratings on seven classes from five UCFC securitizations. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. Fitch can be found online at http://www.fitchratings.com.

Class M-3 of Structured Asset Securities Corp. residential mortgage-backed certificates, series 2002-BC1, has been downgraded from BBB to BB by Fitch Ratings.In addition, Fitch upgraded four classes from two other SASCO issues and affirmed the ratings on 43 classes from 11 issues. The downgrade was attributed to a deterioration in the relationship between credit enhancement and expected losses. "The transaction has experienced monthly losses that have exceeded excess spread in six out of the last 12 months," Fitch reported.

Four classes of securities issued by E*Trade ABS CDO I Ltd., a collateralized debt obligation supported in part by residential and commercial mortgage-backed securities, have been downgraded by Fitch Ratings.The downgrades are as follows: classes C-1 and C-2, from CCC to CC; and $12.50 million of preference shares and approximately $4.97 million of composite securities, from CC to C. The rating agency said the downgrade of the class C notes was due to a low projected principal recovery for the notes. The downgrade of the preference shares "reflects the likelihood that there will not be future distributions to this class," Fitch said, and the downgrade of the composite securities was based on the likelihood that they will be limited to interest distributions from class C-1. The CDO is supported by RMBS, CMBS, CDOs, and asset-backed securities. Fitch can be found online at http://www.fitchratings.com.

CapitalSource Inc., a real estate investment trust based in Chevy Chase, Md., has reported changes to its balance sheet of Dec. 31, 2005, involving the accounting treatment of about $2.3 billion of mortgage-backed securities and about $2.2 billion of related repurchase agreements.The REIT said the accounting treatment was based on investments simultaneously financed with repurchase agreements with the same counterparty. But the company said it has determined that approximately $323.4 million of the MBS were not acquired from and financed with the same counterparty. Therefore, it has recorded them as assets on its Dec. 31 balance sheet, and approximately $311.3 million of associated repurchase financing has been recorded as a liability, CapitalSource reported. The company said it plans eventually to record "substantially all" its MBS on its balance sheet as assets and all associated repurchase agreements as liabilities. CapitalSource also announced that it has received commitments for a $520 million unsecured credit facility, with Wachovia Bank NA as agent and Wachovia Capital Markets LLC as lead arranger for a syndicate of 11 financial institutions. The REIT can be found online at http://www.capitalsource.com.