Fitch Downgrades Reference MGIC

Fitch Ratings has downgraded 10 classes of a synthetic transaction, Home Re Ltd. 2005-2, which references mortgage insurance provided by Mortgage Guaranty Insurance Corp. The issuers of the securities, Home Re Ltd., and Home Re Credit Ltd., entered into a reinsurance agreement with MGIC on the pool of first lien mortgages. The stated maturity date for the notes is Oct. 25, 2012. The rating agency calculated an overall frequency of foreclosure of 30% of the outstanding exposure amount of $483 million. Fitch is estimating that 60% of the total losses will be realized before the notes mature. It calculated a total loss amount for the transaction of 12.30%. Besides the downgrades, Fitch assigned negative outlooks to five classes, M2 through M6, because it is concerned that if expected losses are realized faster than being projected, the transaction could be exposed to additional losses prior to maturity. The rating agency explained that losses are allocated to these notes in the reverse order of priority. The notes are not written down by losses, but an impairment amount is calculated based on the amount of losses allocated to that class.