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
