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Rating Action:

Moody's takes action on $3.7 bn of Second Lien RMBS issued by WASI

01 Jul 2010

New York, July 01, 2010 -- Moody's Investors Service has downgraded the ratings of 12 tranches and confirmed the ratings of 4 tranches from 9 RMBS transactions issued by Wachovia Asset Securitization. The collateral backing these deals primarily consist of closed end second lien (CES) mortgages and home equity lines of credit (HELOCs).

The actions are a result of the continued performance deterioration in second lien pools in conjunction with home price and unemployment conditions that remain under duress. The actions reflect Moody's updated loss expectations on second lien pools. For details regarding Moody's approach to estimating losses on second lien pools, please refer to the methodology publication "Second Lien RMBS Loss Projection Methodology: April 2010" available on Moodys.com.

Certain tranches included in this action, noted below, are wrapped by financial guarantors. For securities insured by a financial guarantor, the rating on the securities is the higher of (i) the guarantor's financial strength rating and (ii) the current underlying rating (i.e., absent consideration of the guaranty) on the security. The principal methodology used in determining the underlying rating is the same methodology for rating securities that do not have a financial guaranty and is as described earlier.

RMBS securities wrapped by Ambac Assurance Corporation are rated at their underlying rating without consideration of Ambac's guaranty.

WASI Financial Limited Partnership Credit Linked Securities 2006-HES1 is a synthetic transaction that provides the owner of the sizable pool of mortgages (the "Protection Buyer") credit protection through a credit default swap with the issuer (the "Protection Seller") of the notes. Through this agreement, the Protection Buyer pays a fee in return for the transfer of a portion of the reference portfolio credit risk. The reference portfolio consists primarily of closed-end second lien residential mortgage loans (CES) and second lien home equity lines of credit (HELOCs).

Investors in the notes have an interest in the holdings of the issuer, which include highly rated investment instruments, a forward delivery agreement and fee collections on the agreement with the Protection Buyer. Investors are exposed to losses from the reference portfolio but benefit only indirectly from cash flows from these assets. Depending on the class of notes held, investors have credit protection from subordination. Maturity Date of the transaction is June 2011.

Other methodologies and factors that may have been considered in the process of rating this issue can also be found in the Rating Methodologies sub-directory on Moody's website. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck

Complete List of Actions

Issuer: WASI Financial Limited Partnership Credit Linked Securities 2006-HES1

Expected Losses (as a % of Original Balance): 4%

Cl. M-4, Confirmed at B1; previously on Mar 18, 2010 B1 Placed Under Review for Possible Downgrade

Cl. M-5, Confirmed at B3; previously on Mar 18, 2010 B3 Placed Under Review for Possible Downgrade

Cl. M-6, Downgraded to Caa3; previously on Mar 18, 2010 Caa2 Placed Under Review for Possible Downgrade

Cl. B-1-A, Downgraded to Ca; previously on Mar 18, 2010 Caa3 Placed Under Review for Possible Downgrade

Cl. B-1-B, Downgraded to C; previously on Mar 18, 2010 Caa3 Placed Under Review for Possible Downgrade

Issuer: Wachovia Asset Securitization Issuance II, LLC 2007-HE1 Trust

Expected Losses (as a % of Original Balance): 11%

Cl. A, Downgraded to Caa1; previously on Mar 18, 2010 Ba3 Placed Under Review for Possible Downgrade

Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated)

Issuer: Wachovia Asset Securitization Issuance II, LLC 2007-HE2 Trust

Expected Losses (as a % of Original Balance): 9%

Cl. A, Downgraded to B3; previously on Mar 18, 2010 Ba1 Placed Under Review for Possible Downgrade

Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated)

Issuer: Wachovia Asset Securitization Issuance, LLC 2003-HE3 Trust

Expected Losses (as a % of Original Balance): 1%

Cl. A, Downgraded to Baa3; previously on Mar 18, 2010 Baa1 Placed Under Review for Possible Downgrade

Financial Guarantor: MBIA Insurance Corporation (Current Rating B3, Outlook Negative on 6/25/2009)

Issuer: Wachovia Asset Securitization Issuance, LLC 2004-HE1 Trust

Expected Losses (as a % of Original Balance): 1%

Cl. A, Downgraded to B2; previously on Mar 18, 2010 Baa2 Placed Under Review for Possible Downgrade

Financial Guarantor: MBIA Insurance Corporation (Current Rating B3, Outlook Negative on 6/25/2009)

Issuer: Wachovia Asset Securitization, Inc. 2002-HE1 Trust

Expected Losses (as a % of Original Balance): 1%

Cl. A, Confirmed at Baa3; previously on Mar 18, 2010 Baa3 Placed Under Review for Possible Downgrade

Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated)

Issuer: Wachovia Asset Securitization, Inc. 2002-HE2 Trust

Expected Losses (as a % of Original Balance): 1%

Cl. A, Downgraded to Baa3; previously on Mar 18, 2010 Baa2 Placed Under Review for Possible Downgrade

Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated)

Issuer: Wachovia Asset Securitization, Inc. 2003-HE1 Trust

Expected Losses (as a % of Original Balance): 1%

Cl. A-1, Downgraded to Ba3; previously on Mar 18, 2010 Baa2 Placed Under Review for Possible Downgrade

Financial Guarantor: Financial Guaranty Insurance Company (Issuer Rating Withdrawn 3/25/2009)

Cl. A-2, Downgraded to Ba3; previously on Mar 18, 2010 Baa2 Placed Under Review for Possible Downgrade

Financial Guarantor: Financial Guaranty Insurance Company (Issuer Rating Withdrawn 3/25/2009)

Issuer: Wachovia Asset Securitization, Inc. 2003-HE2 Trust

Expected Losses (as a % of Original Balance): 1%

Cl. A-I-1, Confirmed at Baa1; previously on Mar 18, 2010 Baa1 Placed Under Review for Possible Downgrade

Financial Guarantor: Financial Guaranty Insurance Company (Issuer Rating Withdrawn 3/25/2009)

Cl. A-II-1, Downgraded to Ba3; previously on Mar 18, 2010 Baa1 Placed Under Review for Possible Downgrade

Financial Guarantor: Financial Guaranty Insurance Company (Issuer Rating Withdrawn 3/25/2009)

Cl. A-II-2, Downgraded to Ba3; previously on Mar 18, 2010 Baa1 Placed Under Review for Possible Downgrade

Financial Guarantor: Financial Guaranty Insurance Company (Issuer Rating Withdrawn 3/25/2009)

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

Excel: http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF208899

For more information please see www.moodys.com.

New York
Amelia (Amy) Tobey
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter Genis
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's takes action on $3.7 bn of Second Lien RMBS issued by WASI
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