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Rating Action:

Moody's Takes Action on 11 US RMBS bonds from 8 Deals issued from 1996 to 1999

Global Credit Research - 20 Dec 2017

New York, December 20, 2017 -- Moody's Investors Service (Moody's) has confirmed the ratings of two bonds, upgraded the rating of one bond and downgraded the ratings of eight bonds from eight US residential mortgage backed transactions (RMBS), issued by multiple issuers prior to 2009. Eight of the bonds in this action are Interest Only-Principal Only (IO PO) bonds, which have both an Interest-Only (IO) component and a Principal-Only (PO) component; one of the bonds is an IO bond, and the remaining two bonds are Principal and Interest (P&I) bonds.

Six of the IO PO bonds were among those placed on review on 15 August 2017 in connection with data input errors in our earlier analysis. The remaining two IO PO bonds and the one IO bond were among those placed on review on 29 August 2017 in connection with a reassessment of our internal linkage of these IO bonds to their reference bond(s) or pool(s).

Complete rating actions are as follows:

Issuer: BlackRock Capital Finance L.L.C. 1996-R1

A-WAC, Confirmed at Aaa (sf); previously on Aug 29, 2017 Aaa (sf) Placed Under Review for Possible Downgrade

Issuer: BlackRock Capital Finance L.L.C. 1997-R1

WAC, Downgraded to C (sf); previously on Aug 29, 2017 Caa2 (sf) Placed Under Review Direction Uncertain

Issuer: BlackRock Capital Finance L.L.C. 1997-R3

A-WAC, Downgraded to C (sf); previously on Aug 15, 2017 Caa2 (sf) Placed Under Review Direction Uncertain

Issuer: Ocwen Residential MBS Corp. Mortgage Pass-Through, 1998-R3

A-WAC, Downgraded to C (sf); previously on Aug 15, 2017 Caa2 (sf) Placed Under Review Direction Uncertain

Issuer: Ocwen Residential MBS Corporation Series 1998-R1

A-WAC, Downgraded to C (sf); previously on Aug 15, 2017 B3 (sf) Placed Under Review Direction Uncertain

B-2, Downgraded to C (sf); previously on Jan 28, 2013 Affirmed Ca (sf)

Issuer: Ocwen Residential MBS Corporation, Series 1999-R2

AP, Downgraded to C (sf); previously on Aug 15, 2017 Caa1 (sf) Placed Under Review Direction Uncertain

B1, Upgraded to Caa2 (sf); previously on Jan 28, 2013 Affirmed C (sf)

Issuer: SBMS VII 1997-HUD1

A-WAC, Downgraded to C (sf); previously on Aug 15, 2017 Caa3 (sf) Placed Under Review Direction Uncertain

Issuer: SBMS VII 1997-HUD2

A-WAC, Downgraded to C (sf); previously on Aug 15, 2017 Ba3 (sf) Placed Under Review Direction Uncertain

IO, Confirmed at C (sf); previously on Aug 29, 2017 C (sf) Placed Under Review for Possible Upgrade

RATINGS RATIONALE

Today's rating actions reflect the recent performance of the underlying pools and Moody's updated loss expectations on the pools. Some of the actions also reflect a change in the relative weight that Moody's assigns to the IO and PO components of the IO PO bonds, the correction of prior data input errors, and the reassessment of IO linkage, as discussed below.

The rating of Class B1 from Ocwen 1999-R2, a P&I bond, was upgraded due to an increase in credit enhancement available to the bond. The rating of Class B-2 from Ocwen 1998-R1, also a P&I bond, was downgraded due to a decrease in the credit enhancement available to the bond.

Today's action resolves the review of one IO bond, Class IO from SBMS VII 1997-HUD2, which was among those placed on review for a reassessment of the IO bond linkages captured in our internal database, prompted by the identification of errors in that database. The factors that Moody's considers in rating an IO bond depend on the type of referenced securities or assets to which the IO bond is linked. We have reassessed the linkage for Class IO from SBMS VII 1997-HUD2, and determined that the linkage was incorrect. The correction of the linkage had no impact on the rating, and the rating is being confirmed.

The remaining eight bonds in today's action are IO PO bonds, which have both an interest-only component and a principal-only component. Moody's determines the rating of IO PO bonds using a weighted average of the ratings of the two components. While historically we were using a more qualitative judgment in the analysis of these IO PO bonds, we have now assigned weights of 95% and 5% to the IO and PO components, respectively, because the credit risk of the transaction is almost solely attributable to the performance of the IO component. In addition, as the PO components pay off or take losses, the ratings of the IO PO bonds will eventually become equal to that of the IO components.

The PO components of the IO PO bonds in this rating action are linked to the arrearage pool in each transaction; in addition to receiving principal from the arrearage pools they are entitled to a share from the senior distribution amount along with the other senior certificates. The arrearage pool in these transactions represents past-due payments on the loans at the time of securitization. The ratings of the PO components take into account the credit enhancement provided by subordination and payment priority of the tranche relative to the subordinate tranches. The ratings on the IO components reflect the linkage reassessment and updated performance of the respective transactions, including expected losses on the collateral, and pay-downs or write-offs of the related reference bonds.

Six of the eight IO PO bonds were among those placed on review in connection with data input errors in prior analyses: Class A-WAC from BlackRock 1997-R3, Class A-WAC from Ocwen 1998-R3, Class A-WAC from Ocwen 1998-R1, Class A-WAC from SBMS VII 1997-HUD1, Class A-WAC from SBMS VII 1997-HUD2, and Class AP from Ocwen 1999-R2. The data input errors have been corrected, and updated performance was considered in connection with this rating action. We have also reassessed the linkage of these six bonds and determined that they were linked to the appropriate reference bonds. The rating downgrades on these IO PO bonds are driven primarily by the greater weight we are giving to the IO component compared to the PO component.

The remaining two IO PO bonds, Class A-WAC from BlackRock 1996-R1 and Class WAC from BlackRock 1997-R1, were among those placed on review for a reassessment of the IO bond linkages captured in our internal database, prompted by the identification of errors in that database. We have reassessed the linkage on these bonds and determined that they were linked to the appropriate reference bonds. Updated performance information was also considered in connection with these rating actions. Class A-WAC from BlackRock 1996-R1 benefits from a guarantee by the Federal Home Loan Mortgage Corp. (Freddie Mac); as such, the rating of the bond was confirmed at Aaa (sf), reflecting the rating of Freddie Mac. The downgrade of Class WAC from BlackRock 1997-R1 is driven primarily by the greater weight we are giving to the IO component compared to the PO component.

We are evaluating the remaining IO bonds on review and note that, although a number of linkages may be corrected, this will not necessarily lead to rating movements in all cases.

The principal methodology used in these ratings was "US RMBS Surveillance Methodology" published in January 2017. The methodologies used in rating BlackRock Capital Finance L.L.C. 1996-R1 A-WAC, BlackRock Capital Finance L.L.C. 1997-R1 WAC, BlackRock Capital Finance L.L.C. 1997-R3 A-WAC, Ocwen Residential MBS Corp. Mortgage Pass-Through, 1998-R3 AWAC, Ocwen Residential MBS Corporation Series 1998-R1 A-WAC, Ocwen Residential MBS Corporation, Series 1999-R2 AP, SBMS VII 1997-HUD1 A-WAC, SBMS VII 1997-HUD2 IO, and SBMS VII 1997-HUD2 A-WAC were "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017 and "US RMBS Surveillance Methodology" published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Factors that would lead to an upgrade or downgrade of the ratings:

Ratings in the US RMBS sector remain exposed to the high level of macroeconomic uncertainty, and in particular the unemployment rate. The unemployment rate fell to 4.1% in November 2017 from 4.6% in November 2016. Moody's forecasts an unemployment central range of 4.5% to 5.5% for the 2017 year. Deviations from this central scenario could lead to rating actions in the sector. House prices are another key driver of US RMBS performance. Moody's expects house prices to continue to rise in 2017. Lower increases than Moody's expects or decreases could lead to negative rating actions. Finally, performance of RMBS continues to remain highly dependent on servicer procedures.

An IO bond may be upgraded or downgraded, within the constraints and provisions of the IO methodology, based on lower or higher realized and expected loss due to an overall improvement or decline in the credit quality of the reference bonds and/or pools.

A list of these actions including CUSIP identifiers and the associated pool losses and tranche recoveries may be found at:

Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF464661

For more information please see www.moodys.com.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ilana Fried
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ola Hannoun-Costa
VP-Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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