Wednesday, January 30, 2008

S&P Takes Action On 6,389 U.S. Subprime RMBS Ratings And 1,953 CDO Ratings

(Standard & Poor's) Jan. 30, 2008--Standard & Poor's Ratings Services
today announced that it has placed on CreditWatch with negative implications
or downgraded its ratings on 6,389 classes from U.S. residential
mortgage-backed securities (RMBS) transactions backed by U.S. first-lien
subprime mortgage collateral rated between January 2006 and June 2007. At the
same time, it placed on CreditWatch negative 1,953 ratings from 572 global CDO
of asset-backed securities (ABS) and CDO of CDO transactions.

The affected U.S. RMBS classes represent an issuance amount of approximately
$270.1 billion, or approximately 46.6% of the par amount of U.S. RMBS backed
by first-lien subprime mortgage loans rated by Standard & Poor's during 2006
and the first half of 2007. The CDO of ABS and CDO of CDO classes with ratings
placed on CreditWatch negative represent an issuance amount of approximately
$263.9 billion, which is about 35.2% of Standard & Poor's rated CDO of ABS and
CDO of CDO issuance worldwide.

Standard & Poor's has completed its global review of all its rated
asset-backed commercial paper (ABCP) conduits with exposure to these U.S. RMBS
and CDO classes and confirms that none of its ratings on any outstanding ABCP
notes will be adversely affected solely as a result of today's rating actions.

Standard & Poor's has also completed its review of all Standard & Poor's rated
structured investment vehicle (SIV) and SIV-lite structures with regard to
exposure to these U.S. RMBS classes. This review shows that there are nine
SIVs with exposure to 133 of the affected tranches. The vast majority of the
exposure is to tranches with ratings placed on CreditWatch. These exposures
are primarily in SIVs that have restructured, defaulted already, or are
receiving liquidity support, and therefore the SIVs are not adversely affected
by these rating actions. Of the five SIV-lites originally rated, only one is
currently still operating and has been restructured. This review of this
SIV-lite shows that there is exposure to two of the affected U.S. RMBS
classes, and the ratings are not adversely affected by these rating actions.

Complete lists of the classes affected by today's RMBS and CDO rating actions
and CreditWatch placements are available on RatingsDirect, the real-time
Web-based source for Standard & Poor's credit ratings, research, and risk
analysis, at www.ratingsdirect.com, and also at www.spviews.com, Standard &
Poor's special Web site for subprime and related mortgage matters. The list of
RMBS downgrades and CreditWatch placements, along with two related transition
matrices, is included in "U.S. RMBS Ratings Affected By Jan. 30, 2008, Rating
Actions,"
while the list of CDO classes with ratings placed on CreditWatch
negative can be found in "CDO Classes Affected By Jan. 30, 2008, Rating
Actions."


A teleconference to discuss today's ratings actions will be held on Thursday,
Jan. 31, 2008, at 11:00 a.m. EST. Dial-in information can be found at the end
of this release.

RATING ACTIONS ON 2006 AND 2007 VINTAGE FIRST-LIEN SUBPRIME RMBS

We lowered our ratings on 2,607 classes from the 2006 vintage RMBS backed by
first-lien subprime mortgage collateral. The balance of these downgraded
classes was approximately $34.7 billion as of the December 2007 distribution
date. These rating actions bring the total number of classes issued during
this period and downgraded to date to 2,651. In total, the downgraded classes
represent an original par amount of approximately $35.2 billion, which is 8.2%
of the $422.0 billion original par amount issued during 2006. Approximately
$17.6 billion of the total amount downgraded represents repeat rating actions.

We placed on CreditWatch negative 2,035 classes issued during 2006. These
classes had an original principal balance of $182.0 billion and had paid down
to $136.0 billion as of the December 2007 distribution date. In total, these
actions represent approximately 42.4% of the total amount of subprime
transactions rated by Standard & Poor's during 2006 ($428 billion; total
slightly adjusted to reflect reclassification of mortgage pools). In addition,
44 classes remain on CreditWatch negative, 29 of which were placed there due
to transaction performance and 15 in connection with the placement on
CreditWatch negative of Ambac Assurance Corp.'s 'AAA' financial strength
rating. We affirmed our ratings on the outstanding remaining 1,735 classes
issued during 2006.

The RMBS rating downgrades for the 2007 vintage include 1,180 classes backed
by first-lien subprime mortgage collateral. The balance of the downgraded
classes was approximately $15.4 billion as of the December 2007 distribution
date. These rating actions resolve the CreditWatch negative placements of 19
of the subprime classes placed there on Oct. 17, 2007. Of the remaining 13
subprime classes placed on CreditWatch negative, five are due to transaction
performance and eight are due to the placement on CreditWatch negative of
Ambac. These rating actions bring the total number of classes issued during
this period and downgraded to date to 1,188. In total, the downgraded classes
represent an original par amount of approximately $15.9 billion, which is
10.6% of the $150.4 billion original par amount issued during 2007 (the
original par amount was adjusted to reflect the reclassification of the
mortgage pools). Approximately $14.7 billion of the total amount downgraded
represents repeat rating actions.

We placed on CreditWatch negative 567 classes issued during 2007. These
classes had an original principal balance of $37.8 billion and had paid down
to $34.8 billion as of the December 2007 distribution date. In total, these
actions represent approximately 25% of the total amount of subprime
transactions rated by Standard & Poor's during the period of issuance ($150.4
billion). We affirmed the ratings on the outstanding remaining 691 classes
issued during 2007.

These rating actions follow Standard & Poor's announcement on Jan. 15, 2008,
of further revised assumptions for surveilling RMBS transactions backed by
U.S. residential mortgage collateral and planned revisions to assumptions used
for CDOs of ABS. The Jan. 15, 2008, media release can also be found at
www.spviews.com.

Today's rating actions incorporate our most recent economic assumptions and
reflect our expectation of further defaults and losses on the underlying
mortgage loans and the consequent reduction of credit support from current and
projected losses. Later in this media release we discuss in more detail the
changes to our surveillance assumptions for all of RMBS securities. This
includes the application of lifetime expected losses, our revised expected
losses for 2006, our expected losses for 2007, and our view of the potential
effect of loan modifications.

CDO OF ABS AND CDO OF CDO CREDITWATCH PLACEMENTS

Today's CDO CreditWatch negative placements result from several factors,
including the effect of today's rating actions on first-lien subprime RMBS
classes. These subprime RMBS classes represent a large proportion of the
collateral assets held by mezzanine and high-grade CDOs. Mezzanine CDOs are
CDOs of ABS typically collateralized at origination primarily by 'A' through
'BB' rated tranches of RMBS and other structured finance assets, while
high-grade CDOs are CDOs of ABS typically collateralized at origination
primarily by 'AAA' through 'A' rated tranches of RMBS and other structured
finance transactions. Generally speaking, the credit performance of the
underlying assets is the most important determinant of CDO rating performance,
and today's RMBS rating actions will significantly affect the ratings assigned
to a large number of 2006 and 2007 vintage mezzanine and high-grade CDOs.
Mezzanine and high-grade CDOs have, on average, approximately 67% and 40%
collateral exposure to subprime RMBS, respectively.

The CDO CreditWatch placements also result from our estimate of the effect of
the changes Standard & Poor's is making to the recovery rate and correlation
assumptions we use to assess U.S. RMBS held within CDO collateral pools. These
assumptions are used for both the rating of new CDO transactions and the
monitoring of existing CDO transactions. We have placed on CreditWatch
negative the ratings of CDO tranches for which we expect to see a negative
rating impact from the lower recovery rate assumptions and higher correlation
assumptions. Standard & Poor's announced on Jan. 15, 2008 that these
assumptions were in the process of being revised (see "U.S. RMBS Surveillance,
CDO Of ABS Assumptions Revised Amid Defaults, Negative Housing Outlook,"

published on RatingsDirect). We expect to publish certain revised correlation
and recovery rate numbers within the next several days.

Included in today's CreditWatch negative placements are ratings from 213
non-excess-spread synthetic CDO transactions. We will resolve these placements
after the updated correlation and recovery assumptions have been released and
incorporated into CDS Accelerator. CDS Accelerator is the analytical tool
through which the non-excess-spread synthetic CDO transactions are run each
month to generate synthetic rated overcollateralization (SROC) numbers, which
serve as the foundation of the surveillance process for these transactions. We
expect to be in a position to incorporate CDS Accelerator with the new CDO
recovery rate and correlation assumptions within the next several weeks.

For the 359 cash flow and hybrid CDO transactions with ratings placed on
CreditWatch negative today, the timing of the resolution will depend in part
on the nature of the underlying collateral pool. Standard & Poor's expects to
resolve the CreditWatch placements on the affected cash flow and hybrid
mezzanine CDO of ABS transactions within the next six weeks. The resolution of
the CreditWatch placements on most high-grade CDOs will occur after the
reviews for the mezzanine CDOs and after the resolution of today's CreditWatch
placements on 'AAA' and 'AA' rated tranches from the 2007 vintage first-lien
subprime RMBS transactions. Because most high-grade CDOs are collateralized in
part by highly rated classes from subprime RMBS transactions, the resolution
of today's RMBS CreditWatch negative placements should provide input into the
analysis for these CDO transactions.

Additionally, the reviews of high-grade CDOs will follow the reviews for
mezzanine CDOs because high-grade CDOs originated during 2006 and 2007 have an
average of 10% to 12% collateral exposure to senior tranches issued by
mezzanine CDOs. To the extent that mezzanine CDO tranches held within a given
high-grade SF CDO's portfolio are impacted by today's RMBS downgrades, this
may affect the outcome of the high-grade CDO review. The CreditWatch
placements on the CDO of CDO transaction ratings should follow the reviews of
the ratings on the underlying CDO transactions.

Including today's CDO CreditWatch placements, globally Standard & Poor's has
lowered the ratings on a total of 1,383 tranches from 420 CDOs, and has placed
on CreditWatch negative the ratings on 2,880 tranches from 719 CDOs, as a
result of RMBS credit deterioration and stress in the U.S. residential
mortgage market, affecting a total of $357.6 billion in CDO issuance.
Information on Standard & Poor's rating actions as a result of RMBS credit
deterioration and stress in the residential mortgage market is updated weekly
and is available on RatingsDirect and at www.spviews.com.

FACTORS DRIVING RMBS RATING ACTIONS

Mortgage Pool Performance—2006

Monthly performance data reveal that delinquencies and foreclosures continue
to accumulate at an increasing rate for the 2006 vintage. Since July 2007,
cumulative losses on all U.S. subprime RMBS transactions issued during 2006
are 1.13%, an increase of 156%. At the same time, total and severe
delinquencies have increased by 49% and 66%, respectively. As of the December
2007 distribution date the total delinquency rate had increased to 28.79% and
severe delinquencies were 18.83%.

This delinquency trend, together with loan level risk characteristics and
continuing deterioration in the macroeconomic outlook, has caused us to
increase our lifetime loss projection to 19% from the 14% we projected at
mid-year 2007 based on performance up to that date. At that time, the range
for expected losses was 12%–16%, but this range has now increased to 18%–20%.

Mortgage Pool Performance—2007

The transactions issued during the first half of 2007 have what we consider to
be an established trend of poor delinquency performance and have already
realized losses. Many of these transactions closed with approximately 1%–3% of
loans already seasoned by several months. Since July 2007, cumulative losses
on the subprime RMBS transactions issued during the first half of 2007 have
increased to 0.25% from approximately 0.01%. At the same time, total
delinquencies have grown to 20.40% from 7.43% and severe delinquencies have
grown to 11.51% from 2.48%. As of the December 2007 distribution date, the
total delinquency rate had increased to 20.4% and severe delinquencies were
11.51%. We are projecting lifetime losses for these transactions to be around
17%, with a range of approximately 16%–18%.

Our loss projections on the 2007 vintage are based on an analysis of the loan
characteristics and relative vulnerability to property value declines. Credit
scores, loan-to-value (LTV) ratios, and combined loan-to-value (CLTV) ratios
are comparable to mortgages sold in 2006. The pools from the first half of
2007 have a higher percentage of fixed-rate loans, a lower percentage of 2/1
adjustable-rate mortgages (ARMs), a lower percentage of low-doc or no-doc
loans, and a lower percentage of loans used for purchase. Data analysis shows
that these differences yield an overall lower risk profile for the H1 2007
vintage.

Moreover, an analysis of the S&P/Case-Shiller National House Price Index shows
that price declines from 2006 are larger than the declines experienced since
the first half of 2007, on average, by approximately 2%. By comparing the
index change from 2006 to the October 2007 reported index, we note that prices
have declined about 6% on average. Similarly, comparing the index change from
the first half of 2007 to the October reported index, prices have declined
about 4% on average. Thus, loans from the 2006 vintage are secured by
properties that have suffered greater declines on average than the properties
backing the 2007 vintage. As a result, we believe the projected losses will be
slightly lower than those for 2006.


FACTORS DRIVING NEW RMBS SURVEILLANCE ASSUMPTIONS

In reviewing the 2006 and 2007 subprime transactions, we employed the
surveillance assumptions announced on Jan. 15, 2008, and described in "U.S.
RMBS Surveillance, CDO Of ABS Assumptions Revised Amid Defaults, Negative
Housing Outlook." We believe that the application of expected lifetime losses
has become appropriate as the depth and duration of the housing downturn
continues to increase. In most cases our loss expectations exceed the credit
enhancement available for the average 'A' rated class and below. As a result,
those classes that had expected lifetime losses greater than credit
enhancement had their ratings lowered to 'CCC'.

In addition, the ratings on many of the 2006 notes previously rated 'B' and
'CCC' and various ratings from pools with extraordinarily high levels of
severely delinquent loans were lowered to 'CC' as our analysis revealed that
these classes have a greater likelihood of default in the nearer term. Our
view as to the ability of a class to withstand losses in excess of our
projections determined the extent to which a rating was adjusted. In
anticipation of increased loan modifications, we discounted the excess spread
available to cover credit losses. These assumptions are consistent with
scenarios recently published in "Reviewing The Impact Of Rate Freezes On Rated
U.S. First-Lien Subprime RMBS Under Two Scenarios,"
on Dec. 21, 2007.

RMBS RATING ACTIONS AND WHAT WE CAN EXPECT

'AAA' And 'AA' Rating Levels

By number of ratings, we placed on CreditWatch negative approximately 45% of
the outstanding 'AAA' and 57% of the 'AA' rating categories from the 2006
vintage. At the same time, we placed on CreditWatch negative approximately 20%
of the outstanding 'AAA' and 93% of the 'AA' rating categories from the first
half of 2007.

While each of the certificate classes placed on CreditWatch negative currently
lack what we believe to be a sufficient amount of credit enhancement in excess
of projected losses, subsequent rating actions will not occur until additional
analysis is completed on each of the individual classes affected. We expect to
further evaluate the adequacy of credit enhancement given the recent cuts to
the federal fund rates and their effect on excess spread, the date of
projected defaults versus the date of payment in full, and the relationships
between projected credit support and projected losses throughout the remaining
life of the certificates.

Tables 1 and 2 show the classes with ratings lowered and placed on CreditWatch
negative as a percentage of the original balance of the total amount affected
($215 billion for 2006 and $53 billion for 2007).

Table 1
2006 Vintage
Total $ actions (%)
Rating Downgrades CreditWatch negative
AAA 0.00 69.08
AA+ 0.00 5.27
AA 0.00 6.79
AA- 0.00 2.59
A+ 2.41 0.05
A 1.90 0.03
A- 1.36 0.02
BBB+ 2.34 0.03
BBB 0.78 0.03
BBB- 0.66 0.02
BB+ 0.51 0.02
BB 1.94 0.01
BB- 0.03 0.00
B+ 0.10 0.00
B 2.25 0.00
B- 0.01 0.00
CCC 1.79 0.00
Total 16.08 93.92

Table 2
2007 Vintage
Total $ actions (%)
Rating Downgrades CreditWatch negative
AAA 0.00 45.94
AA+ 0.00 12.94
AA 0.00 8.74
AA- 0.00 3.33
A+ 2.10 0.00
A 3.14 0.00
A- 2.77 0.00
BBB+ 3.43 0.00
BBB 3.39 0.00
BBB- 3.54 0.00
BB+ 3.76 0.00
BB 2.94 0.00
BB- 2.15 0.00
B+ 1.09 0.00
B 0.27 0.00
B- 0.48 0.00
CCC 0.00 0.00
Total 29.04 70.96

ECONOMIC FACTORS

On a macroeconomic level, we expect that the U.S. housing market, especially
the subprime sector, will continue to decline before it improves, and we
expect housing prices will continue to come under stress. Recent industry
reports reveal that housing prices have declined by approximately 6% since the
start of 2006 and approximately 4% since the start of 2007. Weakness in the
property markets continues to exacerbate losses, with little prospect for
improvement in the near term. As of November 2007, the number of properties in
foreclosure in the U.S. reached 1,329,703.

Furthermore, we expect losses to continue increasing, with borrowers
experiencing rising loan payments as the terms of adjustable-rate loans
originated in early 2006 reset and principal amortization occurs after the
interest-only period ends for both adjustable- and fixed-rate loans. An
estimated $342 billion of mortgages is expected to reset during 2008. However,
we expect many of the affected borrowers will find relief through loan
modifications that will hold initial interest rates constant for several
years.

We expect available credit enhancement to decrease as a result of the loan
modifications. Although property values have decreased approximately 6% to
date, we expect additional declines. David Wyss, Standard & Poor's chief
economist, has adjusted his projection, forecasting that by the end of 2008
property values will have declined by as much as 13% on average since 2006,
and the market will bottom out early in 2009.

While this is an aggregate view, it is important to note that certain markets
have already suffered declines greater than this forecast. According to the
S&P/Case-Shiller Tiered Price Indices, cities such as San Diego and San
Francisco have experienced price declines of 12.0% and 6.5%, respectively, and
lower-priced homes in those areas have experienced declines of 18.5% and
17.5%, respectively. These lower-priced homes, which carry an average loan
balance of around $213,000, generally secure subprime mortgages. Similarly,
for Tampa, the aggregate decline since 2006 averages approximately 12%, and
this is consistent across price tiers. In many cases, the actual losses
experienced to date reflect larger declines in value than those forecasted. It
is possible, therefore, that further price declines may not have as great an
effect on losses as one might expect.

Except for the CreditWatch resolutions, we do not anticipate further major
rating actions for the U.S. RMBS subprime ratings issued during 2006 and the
first half of 2007. We anticipate reviewing other vintages and products in the
RMBS sector over the next few weeks, including prior vintages of subprime
mortgages, RMBS backed by Alt-A mortgages, and securities backed by prime
collateral. We expect that this review will be concluded and the results
announced over the next two months.

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