S&P Lowers Ratings on 1,413 U.S. RMBS Classes Backed by Subprime Mortgage Loans from the 4Q 2005 - 4Q 2006

1.1% of Downgrades Impact 'AAA' Rated Securities

    NEW YORK, Oct. 19 /PRNewswire/ -- Standard & Poor's Ratings Services
 announced today that it has downgraded 1,413 of U.S. residential mortgage-
 backed securities (RMBS) backed by first-lien subprime mortgage loans that
 were issued from the beginning of the fourth quarter of 2005 through the
 fourth quarter of 2006. These downgraded securities had an original par
 value of $22.02 billion, which represents 4% of the $554.4 billion of U.S.
 RMBS backed by first-lien subprime mortgage loans rated by S&P during this
 period. These actions, combined with downgrades previously announced by
 S&P, impact a total of 1,671 securities of U.S. RMBS backed by first-lien
 subprime mortgage loans issued during this period, representing $24.8
 billion, or 4.5% of the $554.4 billion mentioned above. S&P also affirmed
 its ratings on securities representing $531.6 billion original par value of
 U.S. RMBS backed by first- lien subprime mortgage loans from this same
 period.
     Of the 1,413 securities downgraded today, approximately 47% were rated
 in the 'BBB' category and below. Fifteen 'AAA' rated securities were
 downgraded, accounting for roughly 0.01% of all downgraded securities and
 1.1% of the total dollar amount downgraded. No 'AAA' rating was lowered
 below 'AA'.
     We took these rating actions at this time because, based on the most
 recent data, we expect further delinquencies and losses on the underlying
 mortgage loans; the consequent reduction of credit support from current and
 projected losses; and continued declines in home values.
     While cumulative losses to date remain low, they have increased since
 our July 2007 review and we expect them to increase further. Based on the
 most recent data from September 2007, cumulative losses for the period have
 increased from 29 bps to 69 bps -- a 138% increase since our July 2007
 review.
     The September 2007 data shows increasing levels of overall
 delinquencies and serious delinquencies. Seriously delinquent loans include
 loans that are either: delinquent by more than 90 days, in foreclosure, or
 for which the real estate is possessed by the servicer. For all U.S. RMBS
 backed by first-lien subprime mortgage loans issued during this period,
 overall delinquencies averaged 21.43%, and serious delinquencies averaged
 14.17%. This is in contrast with the downgraded transactions, for which
 overall delinquencies averaged 15.73% and serious delinquencies averaged
 23.33%.
     We expect that the downgraded securities will be particularly
 vulnerable to increased losses because, on average, 60%-70% of the loans
 backing them are subject to some type of payment adjustment in the near
 future. Most of these are 2/1 adjustable-rate mortgages already in their
 adjustable-rate stage and already past their first, and typically largest
 payment reset. Despite some industry claims of increased accommodations to
 subprime borrowers, we expect losses to increase for borrowers who have
 experienced (1) rising loan payments due to resetting terms of their
 adjustable-rate loans, and (2) principal amortization that occurs after the
 interest-only period ends for adjustable- and fixed-rate loans.
     Standard & Poor's expects that the U.S. housing market will continue to
 experience price decreases. We project that property values will decline
 11% on average from peak to trough and will begin to recover in late 2008,
 with the peak having occurred in the spring of 2006. This continued decline
 in home prices will apply additional stress to these securities.
     As part of this review, we assumed losses for defaulted loans that
 closed during the second half of 2005 at a level of 40%, and for those that
 closed during 2006 at a level of 45%. During our July 2007 review we
 assumed losses for defaulted loans that closed in 2006 of 40%. We have now
 increased this assumption based on the most recent data and projected
 declines in home values.
     Standard & Poor's has completed its global review of all rated asset-
 backed commercial paper (ABCP) conduits with exposure to these transactions
 and confirms that the ratings on those ABCP conduits are not adversely
 affected by these rating actions.
     Standard & Poor's has also completed a global review of the exposure of
 its rated structured investment vehicle (SIV) and SIV-lite structures with
 regard to exposure to these fourth-quarter 2005 through fourth-quarter 2006
 vintage U.S. RMBS classes. This review shows that there is exposure to
 eight tranches of these affected U.S. RMBS classes in two SIV-lite
 structures. In addition, there is no exposure to these U.S. RMBS classes in
 any SIV. However, exposure to the affected U.S. RMBS classes will not, in
 and of itself, result in any adverse rating actions with regard to the SIV
 and SIV-lite structures.
     Standard & Poor's is also conducting a review of its rated
 collateralized debt obligation (CDO) transactions with exposure to the
 downgraded RMBS classes, and will take action on the affected CDO class
 ratings where appropriate within the next several days.
 
 

SOURCE Standard & Poor's