Thursday, June 28, 2007

Countrywide Subprime Second-Lien ABS Downgraded

by Tanta on 6/28/2007 05:02:00 PM

And it's only Thursday.

28 Jun 2007 3:08 PM (EDT)

Fitch Ratings-New York-28 June 2007: Fitch Ratings has taken the following actions on classes from Countrywide Asset-Backed Securitizations (CWABS) series 2006-SPS1:

--Class A rated 'AAA', placed on Rating Watch Negative;
--Class M-1 rated at 'AA+', placed on Rating Watch Negative;
--Class M-2 rated at 'AA+', placed on Rating Watch Negative;
--Class M-3 rated at 'AA+', placed on Rating Watch Negative;
--Class M-4 rated at 'AA', placed on Rating Watch Negative;
--Class M-5 rated at 'AA-', placed on Rating Watch Negative;
--Class M-6 downgraded to 'BBB-' from 'A', remains on Rating Watch Negative;
--Class M-7 downgraded to 'BB+' from 'A-', remains on Rating Watch Negative;
--Class M-8 downgraded to 'C' from 'BB+' and assigned a Distressed Recovery (DR) Rating of 'DR6';
--Class M-9 downgraded to 'C' from 'BB' and assigned a Distressed Recovery (DR) Rating of 'DR6';
--Class B downgraded to 'C' from 'BB-' and assigned a Distressed Recovery (DR) Rating of 'DR6'.

The above trust consists entirely of second liens extended to sub-prime borrowers on one- to four-family residential properties and certain other property and assets. CWABS purchased the mortgage loans from CHL and deposited the loans in the trust, which issued the certificates, representing undivided beneficial ownership in the trust.

The negative ratings actions of all classes in the trust reflect the deterioration in the relationship of credit enhancement (CE) to future loss expectations and affect $189.6 million in outstanding certificates.

The impact of the slowdown in the housing market has been particularly evident in highly leveraged subprime borrowers, and delinquency and losses to date for series 2006-SPS1 have been significantly higher than initially expected. After 12 months of seasoning, losses to date as a percentage of the original pool balance are 9.86%. Approximately 14% of the outstanding pool balance is delinquent. Due to the high percentage of losses to date, the cumulative loss trigger will likely fail for the life of the transaction. The failed trigger will generally maintain a sequential allocation of principal with the exception of principal cashflow from the subsequent recoveries of charged-off loans, which may be allocated to subordinate bonds. Fitch expects the amount of principal cashflow from subsequent recoveries to be limited.

While the subordinate classes are expected to incur principal writedowns - as reflected by their distressed ratings - the failed triggers and sequential principal allocation should help mitigate some of the risk of the weak collateral performance for the senior classes. Fitch will closely monitor the delinquency trends and roll rates in the coming months to assess the credit risk of the mezzanine and senior classes.