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Moody's Begins Downgrading AAA-Rated Alt-A RMBS to Junk

Moody's Investors Service issued more Alt-A downgrades on Thursday morning, this time taking a heavy hand to 32 different Aaa-rated tranches from 10 different Alt-A deals. Many of the downgrades even pushed former Aaa's into non-investment grade categories -- a stunning descent for top-rated Alt-A mortgage bonds that underscores two key points. First, defaults are obviously accelerating. Second, many Alt-A deals were issued with less in the way of overcollateralization -- which, in plain English, means that these deals will start to see downgrades sooner, compared to the relative stress that a typical subprime RMBS deal can withstand before the hits start coming at the Aaa level. The rating agency placed an additional 254 Aaa-rated Alt-A classes on negative ratings watch Wednesday. All underlying collateral for the downgrades issued Thursday was originated by Impac Mortgage Holdings., Inc., the agency said in a press statement, making the Irvine, Calif.-based lender among the first major Alt-A lenders to see significant Aaa- downgrades to mortgages it originated. The ignonimous list:
  • Bear Stearns Asset Backed Securities I Trust 2006-IM1, one Aaa class downgraded to A2 (five notches)
  • Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2005-2, four Aaa classes downgraded to as low as A1 (four notches)
  • Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2006-1, four Aaa classes downgraded to as low as Ba1 (ten notches, junk rating)
  • Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2006-2, five Aaa classes downgraded to as low as Ba3 (twelve notches, junk rating)
  • Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2006-3, eleven Aaa classed downgraded to as low as Ba3 (twelve notches, junk rating)
  • Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2006-4, five Aaa classes downgraded to as low as Ba3 (twelve notches, junk rating)
  • Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2006-5, one Aaa class downgraded to Ba2 (eleven notches, junk rating)
  • Impac Secured Assets Corp. Mortgage Pass-Through Certificates, Series 2007-1, one Aaa class downgraded to Baa3 (nine notches, lowest investment-grade rating)
The average HW reader probably knows this, but when Aaa-rated RMBS is slashed to junk status, let's just say that write-downs will tend to inevitably follow. For more information, visit http://www.moodys.com.

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