Servicing

A second major rating agency, Moody's Investors Service, has changed its outlook for certain Fannie Mae ratings.Moody's revised its outlooks for Fannie's subordinated debt and preferred stock ratings from stable to negative Sept. 28 and placed the government-sponsored enterprise's financial strength rating on review for possible downgrade. Moody's said the rating actions "reflect findings by the Office of Federal Housing Enterprise Oversight which have created uncertainty with respect to Fannie's capital levels." Analysts from another major rating agency, Standard & Poor's Ratings Services, had said in a teleconference a day earlier that Fannie Mae's ability to meet regulators' requirements in terms of capital will be a key determinant in what happens to S&P's ratings of Fannie's subordinate debt and preferred stock, which are on watch for a possible downgrade.

The last of the three major rating agencies has responded to recent actions by Fannie Mae's regulator by lowering certain Fannie ratings (rather than warning of possible downgrades, as the others did), thus bringing some ratings more in line with those of its peers.Approximately $17 billion in securities are affected by Fitch Ratings' downgrade of Fannie Mae's subordinated debt and preferred stock from AA to AA-minus, the rating agency reported. Fitch said it based its downgrade partly on the assumption that regulatory actions will "negatively impact profitability and reduce future financial flexibility" at Fannie Mae. In addition, Fitch also said it is concerned because Fannie's management "faces a number of regulatory and political matters as well as potential requirements to improve internal controls and enhance accounting systems."

Embroiled in an explosive accounting scandal, Fannie Mae may stop reporting its earnings, predicted one stock analyst who follows the company.Analyst Mike McMahon, in a research note released Tuesday morning, said, "it's conceivable that [Fannie] may soon have to stop reporting its earnings if it is required to restate the past six years." Last year Freddie Mac -- which was entangled in a $5 billion accounting scandal -- stopped reporting earnings as it cleaned up its books. That company, which restated past earnings upward by $5 billion over three years, is still playing catch-up and isn't yet fully current on its earnings releases. (It hopes to be so by some time next year.) It's anticipated that Fannie will have to restate earnings, but so far it is unclear by how much and when. In the same research report, Mr. McMahon foresees that management changes at Fannie are coming sooner rather than later. Industry officials predict that Fannie chief financial officer Timothy Howard, who was in charge of both setting financial targets and measuring how well they were met, will be among the first to go.

Class B4 of CWMBS (Countrywide Home Loans Inc.) mortgage pass-through certificates, series 1999-6 (Alt 1999-1), has been downgraded from B to CCC by Fitch Ratings and removed from Rating Watch Negative.In addition, Fitch has affirmed the ratings on 17 other CWMBS classes and removed the B4 classes of series 2001-21 (Alt 2001-10) and series 2002-13 (Alt 2002-8) from Rating Watch Negative. The downgrade was attributed to losses incurred and the level of nonperforming loans in relation to the applicable credit support.

Class IIB-5 of Structured Asset Mortgage Investments Inc. mortgage pass-through certificates, series 1999-1 group 2, has been downgraded from B to CCC by Fitch Ratings.In addition, Fitch affirmed the ratings on five classes of SAMI securities and upgraded four. The downgrade "reflects concerns due to high levels of nonperforming assets in relation to diminished credit enhancement provided by class IIB-6 (nonrated)," the rating agency said. The group 2 certificates are collateralized by a pool of conventional first-lien, fixed-rate mortgage loans secured by one- to four-family residences and individual condominium and cooperative units, Fitch said.

Four classes of notes issued by Oceanview CBO I Ltd. have been downgraded by Fitch Ratings and removed from Rating Watch Negative.The downgrades were as follows: class A-2, from AA to A; class B-F, from BBB to BB; class B-V, from BBB to BB; and class C, from BB to CCC-plus. The ratings on three other classes in the deal were affirmed. The transaction, a collateralized debt obligation managed by Deerfield Capital Management, is supported by a diversified portfolio of residential mortgage-backed securities (53.7%), CDOs (14.1%), commercial MBS (11.3%), corporate debt (11.2%), asset-backed securities (9.5%), and real estate investment trusts (0.2%), according to the rating agency. Fitch attributed the downgrades to deteriorating collateral that has resulted in declining overcollateralization.

Two classes of Residential Accredit Loan Inc. mortgage asset-backed pass-through certificates, series 2000-QS1, have been downgraded by Fitch Ratings.Class M-3 was downgraded from BBB to BB-plus, and class B-1 was downgraded from B-minus to CCC. In addition, Fitch upgraded 17 classes in nine RALI transactions, and affirmed the ratings on more than 100 classes in 17 RALI deals. Fitch attributed the downgrades to "poor performance of the underlying collateral, as well as high delinquencies in the transaction." Fitch can be found online at http://www.fitchratings.com.

Ten classes of senior and mezzanine certificates from two IndyMac manufactured housing securitizations have been downgraded by Moody's Investors Service.The downgrades in series 1997-1 were as follows: class A-2, from Aa3 to B1; class A-3, from Aa3 to B1; class A-4, from Aa3 to B1; class A-5, from Aa3 to B1; class A-6, from Aa3 to B1; and class M, from Ba2 to C. The downgrades in series 1998-1 were as follows: class A-3, from Aa3 to B3; class A-4, from Aa3 to B3; class A-5, from Aa3 to B3; and class M, from Ba3 to C. Moody's said the downgrades stemmed from the fact that delinquencies and repossessions have remained high, leading to high cumulative losses and the depletion of overcollateralization. As in other manufactured housing securitizations, the deteriorating performance is due to "weak underwriting standards, combined with macroeconomic factors, such as high unemployment levels in the manufacturing sector where many borrowers are employed," Moody's said. The loans were originated and are being serviced by IndyMac Inc., which exited the manufactured housing sector in 1999 but continues to service the loans from its Pasadena, Calif., servicing center. Moody's can be found online at http://www.moodys.com.

Four certificates from three transactions issued by Aames Mortgage Trust in 2001 have been placed under review for possible downgrade by Moody's Investors Service.The affected certificates are as follows: series 2001-1, class b; series 2001-2, class m-2; series 2001-2, class b; series 2001-3, class b. In addition, Moody's has placed under review for possible upgrade three certificates from one Aames deal. The transactions are backed mostly by first-lien fixed-rate mortgage loans originated by Aames Financial Corp. and serviced by Countywide Home Loans Inc. The certificates were placed under review for possible downgrade "because existing credit enhancement levels may be low given the current projected losses on the underlying pools," Moody's said. "The transactions have taken significant losses, causing gradual erosion of the overcollateralization."

George Miller, deputy general counsel of The Bond Market Association, is stepping down from that post in order to step up to his new position as executive director at one of the association's affiliates, the American Securitization Forum.An ASF spokeswoman said she had no immediate comment on how the move would affect the work Mr. Miller has been responsible for at the association. The Bond Market Association is a trade group that has long worked to promote best-practices guidelines for sell-side debt market participants. The ASF is a newer affiliate that more specifically focuses on U.S. securitization market issues and has a broader membership that includes buy-side as well as sell-side market participants. The memberships of both groups include mortgage industry professionals. TBMA can be found on the Web at http://www.bondmarkets.com.