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Rating Action:

Moody's downgrades $1.5 billion of RMBS backed by Puerto Rican loans issued in 2006

12 Jan 2011

New York, January 12, 2011 -- Moody's Investors Service announced today that it has downgraded the ratings of 40 RMBS tranches issued by Deutsche Mortgage Securities, Inc. Mortgage Loan Trust, Series 2006-PR1 (2006-PR1) and 11 tranches issued by Prime Mortgage Trust 2006-DR1 (2006-DR1) due to continued deterioration in recent performance of these deals.

RATINGS RATIONALE

The deals are backed by fixed-rate residential mortgage loans originated in Puerto Rico. Puerto Rico's economy has been in recession for the past four years and the unemployment rate in the region has increased to 16.0%. Due to the deteriorating economic environment, delinquencies on the underlying pools have significantly increased over the past year. For loans underlying 2006-PR1, delinquencies greater than 60 days (as a percentage of original balance) have risen to 7.54% from 5.81% over the prior 12 months as of September 2010. For loans underlying 2006-DR1 delinquencies greater than 60 days (as a percentage of original balance) have risen to 9.36% from 6.82% a year ago as of September 2010. Historically, a large percentage of delinquent borrowers in Puerto Rico were able to cure out of the delinquencies. However, the prolonged recession has increased the risk of default. Moody's also expects delinquencies (and future defaults) to continue to rise as the unemployment rate in Puerto Rico increases through 2011.

In addition to the increased frequency of defaults, Moody's actions are also based on concerns relating to expectations of severity of loss given default. Historically, Puerto Rico has enjoyed modest house price appreciation -- however, slowdown in the mainland US and the severity of the recession in Puerto Rico, has started to adversely impact house prices on the island, as a result loss severities on the deals are expected to rise. Also, the average foreclosure timeline in Puerto Rico is 24 months which can further exacerbate severities through increased foreclosure costs.

The rating actions are the result of an analysis of credit enhancement relative to updated collateral loss projections. Updated loss estimates for the transactions were arrived at using a two-stage process. First, the increase in the serious delinquencies in the past 12-month period were obtained using historical performance to date. This trend of increase in delinquencies were then converted to projected losses using lifetime roll rates (probabilities of transition to default) of 70%, 80%, 90% and 100% for loans that were 60 day delinquent, 90 or more days delinquent, in foreclosure and properties held-for-sale (REO) respectively. The loss upon default (loss severity) was assumed to be between 40% to 45%. The second step was to determine defaults and losses for the remaining life of the deal following the projection period. To calculate future defaults, Moody's applied a burnout factor to the default rate calculated over the past 12-month period. The burnout accounts for the likely improvement in performance subsequent to 2010 as the economy recovers. Future losses were obtained by applying severity assumptions to future defaults.

Three bonds issued by the Deutsche 2006-PR1 deal are insured by Financial Security Assurance Inc. (Aa3 with Negative outlook). The current ratings on these insured securities are consistent with Moody's practice of rating insured securities at the higher of (1) the guarantor's insurance financial strength rating and (2) the underlying rating, based on Moody's modified approach to rating structured finance securities wrapped by financial guarantors.

In addition, no tranches showed sensitivity in ratings when run with 110% of expected losses with their respective groups, except for Cl. 1-A-1 tranche in Deutsche 2006-PR1. The model implied rating for the Cl. 1-A-1 Tranche is one notch lower when run with 110% of expected loss for Group 1 in Deutsche 2006-PR1.

Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Complete rating actions are as follows:

Issuer: Deutsche Mortgage Securities, Inc. Mortgage Loan Trust, Series 2006-PR1

Group1 current expected loss: 6.5% of original balance; Group2 current expected loss: 3.7% of original balance; Group3 current expected loss: 5% of original balance

Group4 current expected loss: 4.7% of original balance; Group5 current expected loss: 6.2% of original balance

Cl. 1-A-1, Downgraded to Caa1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. A-X, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 2-A-F, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 2-A-S, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 2-PO, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 3-A-F-1, Current rating at Aa3 (sf); previously on Nov 12, 2009 Confirmed at Aa3 (sf)

Underlying Rating: Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Financial Guarantor: Assured Guaranty Corp (Confirmed at Aa3, Outlook Negative on Dec 18, 2009)

Cl. 3-A-F-2, Current rating at Aa3 (sf); previously on Nov 12, 2009 Confirmed at Aa3 (sf)

Underlying Rating: Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Financial Guarantor: Assured Guaranty Corp (Confirmed at Aa3, Outlook Negative on Dec 18, 2009)

Cl. 3-A-I, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 3-A-S, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 3-PO, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 4-A-F-1, Current rating at Aa3 (sf); previously on Nov 12, 2009 Confirmed at Aa3 (sf)

Underlying Rating: Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Financial Guarantor: Assured Guaranty Corp (Confirmed at Aa3, Outlook Negative on Dec 18, 2009)

Cl. 4-A-F-2, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 4-A-I-1, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 4-A-I-2, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 4-A-S-1, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 4-A-S-2, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 4-PO, Downgraded to B1 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-F-1, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-F-2, Current rating at Aa3 (sf); previously on Nov 12, 2009 Confirmed at Aa3 (sf)

Underlying Rating: Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Financial Guarantor: Assured Guaranty Corp (Confirmed at Aa3, Outlook Negative on Dec 18, 2009)

Cl. 5-A-F-3, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-F-4, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-I-1, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-I-2, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-I-3, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-I-4, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-S-1, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-S-2, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-S-3, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-A-S-4, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. 5-PO, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. CW-A1, Downgraded to Caa2 (sf); previously on Jul 8, 2009 Downgraded to Ba1 (sf)

Cl. B-1A, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to B2 (sf)

Cl. B-1B, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to B3 (sf)

Cl. B-2, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

Cl. B-3, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

Cl. B-4, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

Cl. B-5, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

Cl. B-6, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

Cl. B-7, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

Cl. B-X, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to B2 (sf)

Issuer: PRIME Mortgage Trust 2006-DR1

GroupI current expected loss: 4.4% of original balance

GroupII current expected loss: 7.2% of original balance

Cl. I-A-1, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. I-A-2, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. I-PO, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. I-X, Downgraded to B2 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. II-A-1, Downgraded to B3 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. II-A-2, Downgraded to B3 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. II-PO, Downgraded to B3 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. II-X, Downgraded to B3 (sf); previously on Jul 8, 2009 Downgraded to Ba2 (sf)

Cl. B-1, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to B3 (sf)

Cl. B-2, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

Cl. B-3, Downgraded to C (sf); previously on Jul 8, 2009 Downgraded to Ca (sf)

A list of these actions including CUSIP identifiers may be found at:

Excel: http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF230513

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purpose of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Jipil Ha
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Amita Shrivastava
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades $1.5 billion of RMBS backed by Puerto Rican loans issued in 2006
No Related Data.
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