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Rating Action:

Moody's takes action on $37 million of resecuritized RMBS issued by Morgan Stanley 2008-1R

28 Mar 2011

New York, March 28, 2011 -- Moody's Investors Service has downgraded the ratings of seven tranches and confirmed the ratings of four tranches issued by Morgan Stanley Mortgage Resecuritization Trust 2008-1R.

Issuer: Morgan Stanley Mortgage Resecuritization Trust 2008-1R

Cl. A1, Downgraded to Caa2 (sf); previously on Jan 29, 2010 B1 (sf) Placed Under Review for Possible Downgrade

Cl. A3, Downgraded to Caa2 (sf); previously on Jan 29, 2010 B1 (sf) Placed Under Review for Possible Downgrade

Cl. A6, Downgraded to Caa3 (sf); previously on Jan 29, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade

Cl. A7, Downgraded to Caa2 (sf); previously on Jan 29, 2010 B3 (sf) Placed Under Review for Possible Downgrade

Cl. A8, Confirmed at Ca (sf); previously on Mar 12, 2010 Ca (sf) Placed Under Review for Possible Downgrade

Cl. A9, Downgraded to Caa2 (sf); previously on Jan 29, 2010 B3 (sf) Placed Under Review for Possible Downgrade

Cl. A10, Confirmed at Ca (sf); previously on Mar 12, 2010 Ca (sf) Placed Under Review for Possible Downgrade

Cl. A11, Downgraded to Caa3 (sf); previously on Jan 29, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade

Cl. A12, Confirmed at Ca (sf); previously on Mar 12, 2010 Ca (sf) Placed Under Review for Possible Downgrade

Cl. A13, Downgraded to Caa3 (sf); previously on Jan 29, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade

Cl. A14, Confirmed at Ca (sf); previously on Mar 12, 2010 Ca (sf) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

The actions are a result of the bonds not having sufficient credit enhancement to maintain the current ratings when compared to the revised loss expectation on the pool of mortgages backing the underlying certificate.

The resecuritization is backed by the class 7-A1 (the "Underlying Certificate") issued by CSMC Mortgage-Backed Trust Series 2006-9. The underlying certificate is backed primarily by first-lien, Alt-A residential mortgage loans.

The resecuritization has three depositable classes (Classes A3, A4, and A5) that can be deposited in exchange for one or more classes of exchangeable certificates (Classes A1, A2, and A6 through A14).The Class A3 issued by Morgan Stanley 2008-1R is a senior class, supported by a subordinated bond Class A4, which receives principal payments after Class A3 but absorbs losses before Class A4. The class A5 is an interest only bond whose notional amount is linked to the Class A4.

Moody's ratings on the resecuritization certificates are based on:

(i) The updated expected loss on the pool of loans backing the underlying certificate and the updated rating on the underlying certificate. Moody's current loss expectation on the Alt-A pool backing the CSMC 2006-9 underlying certificate and the current rating of this underlying certificate can be found at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF240070.

(ii) The credit enhancement available to the underlying certificate, and

(iii) The structure of the resecuritization transaction.

Moody's first updated its loss assumption on the underlying pool of mortgage loans (backing the underlying certificate) and then arrived at updated rating on the underlying certificate. The rating on the underlying certificate is based on expected recoveries on the bonds under ninety-six different combinations of six loss levels, four loss timing curves and four prepayment curves. The volatility in losses experienced by a tranche due to small increments in losses on the underlying mortgage pool is taken into consideration when assigning ratings. For details regarding Moody's approach to estimating losses on Alt-A pools, please refer to the methodology publications "Alt-A RMBS Loss Projections Update: 2010", available on Moodys.com.

In order to determine the ratings of depositable resecuritized bonds, loss on the underlying certificate was ascribed to the resecuritized classes, according to the structure of the resecuritized transaction. The losses on the resecuritized certificates are allocated "bottom up" with the subordinate class taking losses ahead of the senior class. Principal payments to the certificates are allocated sequentially, with the senior class being paid ahead of the subordinate class. In order to determine the ratings of exchangeable resecuritized bonds, losses on the depositable certificates were ascribed to these exchangeable classes, according to the available exchanges of the depositable classes for exchangeable classes.

The primary source of assumption uncertainty is the current macroeconomic environment, in which unemployment remains at high levels, and weakness persists in the housing market. Moody's notes an increasing potential for a double-dip recession, which could cause a further 20% decline in home prices (versus its baseline assumption of roughly 5% further decline). Overall, Moody's assumes a further 5% decline in home prices with stabilization in early 2011, accompanied by continued stress in national employment levels through that timeframe.

As part of the sensitivity analysis, we stressed the updated expected loss on the pool of loans backing the underlying certificates by an additional 10% and found that the implied ratings of the resecuritized bonds do not change.

Moody's Investors Service received and took into account a third party due diligence report on the underlying assets or financial instruments in this transaction and the due diligence reports had neutral impact on the ratings.

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

http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF240070

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, 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 purposes 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
Jayesh Joseph
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Deepika Kothari
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 takes action on $37 million of resecuritized RMBS issued by Morgan Stanley 2008-1R
No Related Data.
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