S&P Warns, May Downgrade 547 Alt-A Backed Securities

Per Standard & Poor’s today, news that the agency has placed its ratings on 484 classes of U.S. RMBS backed by U.S. first-lien Alt-A mortgage loans issued from the beginning of 2005 through the end of 2006 on CreditWatch with negative implications. In addition, the agency also placed 63 classes of U.S. net interest margin securities (NIMS) transactions backed by the affected U.S. first-lien Alt-A mortgage securities.

Some description of NIMS is probably in order, edited from the press statement:

NIMS are derivatives of RMBS. The primary source of payments to NIMS comes from the difference between the interest payments collected from mortgages and the interest owed to securities, together with prepayment penalties. The current levels of delinquencies and losses occurring in the subprime mortgage market have significantly reduced the levels of excess interest available to some of the NIMS. Unlike the underlying securitization, a NIMS transaction does not benefit from or contain subordination or overcollateralization. NIMS are generally short-term instruments with average tenures of less than 36 months.

S&P said that its ratings watch affects a total of 334 U.S. Alt-A RMBS transactions. The 484 Alt-A classes had an original total balance of approximately $2.09 billion, which represents a miniscule 0.03 percent of the approximately $675.9 billion in U.S. RMBS backed by first-lien Alt-A mortgage loans rated by Standard & Poor’s from the beginning of 2005 through the end of 2006.

The NIMS CreditWatch actions affect a total of 38 U.S. Alt-A RMBS NIMS transactions. The 63 Alt-A NIMS classes with ratings placed on CreditWatch have a current balance of approximately $398 million, which represents roughly 44% of their approximate $905 million original balance.

For more information, visit http://www.standardandpoors.com.