Servicing

Two classes of Diversified Asset Securitization Holdings II LP have been downgraded by Fitch Ratings.The downgrades were as follows: class A-2L, from AA-minus to A-minus; and class B-1, from BBB-minus to BB-minus. Class B-1 was also removed from Rating Watch Negative. Fitch said DASH II is a collateralized debt obligation that was originated and managed by Asset Allocation & Management LLC, but that Western Asset Management Co. became the substitute asset manager for AAMCO in October 2002. The portfolio backing the CDO consists of residential and commercial mortgage-backed securities and commercial and consumer asset-backed securities. Fitch said its review of the credit quality of the collateral and a cash-flow analysis indicated that the original ratings assigned to the downgraded classes "no longer reflect the current risk to noteholders." Fitch can be found online at http://www.fitchratings.com.

Class C of HarbourView CDO III Ltd. -- which is backed by residential and commercial mortgage-backed securities, among other securities -- has been downgraded from BBB to BBB-minus by Fitch Ratings.Fitch also affirmed the ratings on two other classes of the collateralized debt obligation. The CDO is backed by a portfolio of RMBS, general asset-backed securities, CMBS, and other CDOs. The rating agency attributed the downgrade to a continuing deterioration in the credit quality of the underlying portfolio. "HarbourView III holds a number of securities that Fitch has identified as having the potential to impair the ability of the CDO to pay ultimate interest and principal on the class C notes," Fitch said. "The portfolio has experienced a significant credit deterioration in various sectors, including aircraft, manufactured housing, commercial real estate, small business loans, subprime credit card, and mutual fund fee securitizations." Fitch can be found online at http://www.fitchratings.com.

Prepayment rates slowed "far less than expected" for seasoned 6.0%-7.0% agency mortgage-backed securities in the September reporting period, according to the Bear Stearns Prepayment CommentaryAnalysts Dale Westhoff and Bruce Kramer said the latest speeds "suggest that the processing delay between new and seasoned MBS expanded significantly during the final leg of the refinancing wave." The slowdown in constant prepayment rates for seasoned 6.0%-7.0% coupons ranged from 5% to 20%, the analysts said, compared with a 35%-45% CPR decline for new Fannie Mae 5.5s and 6.0s. "The contradiction between leading indicators and actual reported speeds indicates that the sharp sell-off in June sparked a massive rush by borrowers to lock in rates in late June and early July, a rush that was even larger than we had anticipated," the analysts said. They predicted that seasoned high coupons would "play catch-up" to expected speed declines over the next two reports. Bear Stearns can be found online at http://www.bearstearns.com.

Freddie Mac has followed Fannie Mae in tightening its underwriting guidelines on manufactured housing loans by cutting off existing owners from refinancing into 30-year loans.Under Freddie's new seller/servicer guidelines, MH owners can only refinance into a 20-year loan with a loan-to-value ratio no higher than 65%. "We have grave concerns about the impact of that change by both Freddie and Fannie on existing manufactured housing markets and the ability of existing homeowners to tap their equity," said Michael O'Brien, executive vice president of the Manufactured Housing Institute. Freddie also capped the LTV on 30-year purchase loans at 95%, but did not go to a 90% cap like Fannie. "We are pleased -- on the biggest issue, Freddie did not follow Fannie," Mr. O'Brien said. Freddie Mac's new MH guidelines go into effect Jan. 2, along with a new 50-basis-point delivery fee on MH loans. Freddie Mac can be found online at http://www.freddiemac.com.

Class III-B-5 of First Nationwide Trust mortgage pass-through certificates, series 1999-3 group 3, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also upgraded two classes in the deal and affirmed the ratings on three others. The placement on Rating Watch Negative was attributed to loss levels and high delinquencies in relation to applicable credit support as of the September 2003 distribution date.

Fitch Ratings has lowered its minimum servicing fee requirement from 25 to 20 basis points for mortgage-backed securities backed by fixed-rate, prime jumbo mortgages.Fitch said that, because there is a move in the marketplace to reduce fees further, it is holding discussions with several third-party industry participants to get a better understanding of the cost of servicing for different portfolio sizes. "While Fitch believes that the cost to service is very low in today's prime jumbo environment, determining the appropriate cost for securitized jumbo residential MBS is difficult, as each servicer calculates its costs differently," the rating agency said. "Thus, a comparison between servicer costs cannot be made easily." Fitch said servicing fees should be a multiple of actual costs to take into account the possibility of economic stress. Fitch can be found online at http://www.fitchratings.com.

Five classes of senior and subordinate certificates of the Merit Securities Corp. Series 13 manufactured housing securitization are being reviewed for possible downgrade by Moody's Investors Service.The affected securities are classes A3, A4, M1, M2, and B1. Moody's said the review was prompted by weaker-than-anticipated performance by the manufactured housing loans in the collateral pool. "Because of the high cumulative losses and insufficient excess spread, overcollateralization in the transaction has dropped from 10% to 3% of the original pool balance," the rating agency said. Merit is a wholly owned subsidiary of Dynex Capital Inc., a financial services company based in Glen Allen, Va. Moody's can be found online at http://www.moodys.com.

Standard & Poor's Ratings Services has announced that it is evaluating its ratings on various residential mortgage-backed securities insured by General Electric Mortgage Insurance Corp. as a result of the recent lowering of GEMICO's counterparty credit and financial strength ratings.The ratings were lowered from AAA to AA after GEMICO said it would operate its domestic business at capital levels consistent with double-A ratings (which are prevalent in the industry) to free up excess capital. The RMBS transactions under review by S&P have been seasoned seven to 17 years, except for one that was issued in 2000, the rating agency said. The amortized loan-to-value ratios for many of the pools are below 60%. "In addition to current pool performance, Standard & Poor's will also take into consideration the market value appreciation, especially its impact on the underlying collateral during the past five years," said S&P credit analyst Ernestine Warner. "The amortized LTVs and credit enhancement structures will also be analyzed to determine if rating actions are warranted." S&P can be found online at http://www.standardandpoors.com.

The ratings on 16 classes in three Oakwood Mortgage Investors Inc. manufactured housing transactions have been lowered by Standard & Poor's and removed from CreditWatch with negative implications.The downgrades in OMI Trust 2002-A are as follows: classes A-2 to A-4, from AAA to AA-minus; class M-1, from AA to A-minus; class M-2, from A to BB-plus; and class B-1, from BBB to B. The downgrades in OMI Trust 2002-B are: classes A-2 to A-4, from AAA to AA-minus; class M-1, from AA to A-minus; class M-2, from A to BBB-minus; and class B-1, from BBB to BB-minus. The downgrades in OMI Trust 2002-C are: class A-1, from AAA to A-plus; class M-1, from AA to BBB-plus; class M-2, from A to BB-plus; and class B-1, from BBB to B-plus. In addition, S&P affirmed its ratings on four other classes from two of the deals and removed them from CreditWatch negative, the rating agency said. "The lowered ratings reflect the continued poor performance of the underlying pools of manufactured housing contracts and the resulting deterioration of credit enhancement," S&P said. Oakwood announced last November that it was filing for Chapter 11 bankruptcy protection.

In a new letter to shareholders, New York Federal Home Loan Bank president Alfred DelliBovi has revealed that losses on the FHLBank's portfolio sales will reduce its retained earnings to $90 million in the third quarter, down from $240 million at the end of the second quarter.The NY FHLBank sold over $1 billion in downgraded manufactured housing bonds for a loss of $183 million, and the new letter discloses another sale, involving $944 million in residential and business securities, which resulted in a $6.6 million loss. "We are nearing the completion of the review of our investment portfolio and expect no further significant issues," the Sept. 30 letter says. The remaining portfolio of mortgage-backed securities and residential asset-backed securities are rated AAA, he added. Following the MH bond sale, Standard & Poor's downgraded the NY bank's AAA credit rating to AA-plus -- but Moody's Investors Service reaffirmed its Aaa rating. "While we are disappointed with S&P's action, we believe Moody's decision to affirm our rating was a positive response to the sale of our uninsured manufactured housing bonds," Mr. DelliBovi said.