The class A notes of Asset Backed Funding Corp., NIM Trust 2001-AQ1, have been downgraded from Baa3 to B3 by Moody's Investors Service.Net-interest-margin transactions such as this one represent the securitization of excess spread, prepayment penalties, and cap payments generated by the underlying residential mortgage-backed securities, Moody's noted. "These residual cash flows are sensitive to a number of factors including prepayment speeds, cumulative losses incurred on the underlying deal's collateral, the impact of a step-down date, and breach of triggers," the rating agency said. The downgrade was based on the underlying deal's performance, which has negatively affected future residual payments to the NIM holders, Moody's said. The underlying deal, ABFC Mortgage Loan Asset-Backed Certificates Series 2001-AQ1, has not remitted any cash other than prepayment penalties to the NIM bonds since reaching its step-down date in April 2004. The collection of prepayment penalties on the deal is expected to gradually diminish and the interest reserve, which already has a low balance, may eventually be depleted, the rating agency said.
