S&P Downgrades 793 2nd-Lien RMBS Classes

Standard & Poor's Ratings Services has downgraded 793 classes from 116 U.S. residential mortgage-backed securities deals backed by closed-end second-lien mortgage collateral issued from 2004 through 2006.S&P removed 746 of the downgraded classes from CreditWatch negative. (The remaining 47 classes were not on CreditWatch.) The downgraded classes had an original total principal balance of approximately $22.9 billion, which represents 31.8% of the approximately $72.1 billion in closed-end second-lien RMBS rated by S&P from 2004 through 2006. S&P said the actions stemmed from its belief that losses on such RMBS will "significantly exceed historical precedent" and from recent performance data indicating that performance is "likely to be even worse than previously anticipated." This expectation was attributed to: looser underwriting standards; pressure on home prices; speculative borrowing behavior; risk layering; very high combined loan-to-value ratios; pressure on borrowers resulting from payment increases on first-lien mortgages; and questionable data quality. The rating agency can be found online at http://www.standardandpoors.com.