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Rating Action:

Moody's takes action on $37.5 Million of Scratch and Dent RMBS issued by Security National

Global Credit Research - 17 Jan 2014

New York, January 17, 2014 -- Moody's Investors Service has downgraded the ratings on seven tranches in five deals issued by Security National and placed the ratings on review for further downgrade. In addition, Moody's will withdraw the ratings of all 33 tranches in nine Security National deals, including the five deals that were downgraded and placed on review. The transactions are backed by Scratch and Dent RMBS loans.

The complete rating actions are as follows:

Issuer: Security National Mortgage Loan Trust 2005-1

Cl. AF-1, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 31, 2013 Aa2 (sf) Placed Under Review for Possible Downgrade

Cl. AF-2, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 31, 2013 A3 (sf) Placed Under Review for Possible Downgrade

Cl. AV, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 31, 2013 Baa1 (sf) Placed Under Review for Possible Downgrade

Issuer: Security National Mortgage Loan Trust 2006-1

Cl. 1-A2, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 31, 2013 A2 (sf) Placed Under Review for Possible Downgrade

Issuer: Security National Mortgage Loan Trust 2006-2

Cl. A-2, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 31, 2013 Aa2 (sf) Placed Under Review for Possible Downgrade

Issuer: Security National Mortgage Loan Trust 2006-3

Cl. A-1, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 31, 2013 Baa1 (sf) Placed Under Review for Possible Downgrade

Issuer: Security National Mortgage Loan Trust 2007-1

Cl. 1-A2, Downgraded to Ba1 (sf) and Remains On Review for Possible Downgrade; previously on Oct 31, 2013 A3 (sf) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

Today's actions reflect Moody's concern about the heightened operational risk in transactions that SN Servicing Corporation services. This has been prompted by SN Servicing Corporation's sale of both current and delinquent loans, as referenced in our October 31, 2013 press release, and advance recoupment. In one transaction Security National Mortgage Loan Trust 2002-2 bondholders incurred an $8.1 million loss and the Class A-3 bond incurred a $2.8 million loss, or 52% of its outstanding principal, and the Class M-1 bond was fully written-off. Selling current loans out of a REMIC trust contravenes standard servicing practices of RMBS servicers and we believe that such action was not permitted by the transaction documents.

We are concerned that SN's action exposes the various deals that it services to market value risk and raises concerns about potentially high and unquantifiable losses on the collateral, which could deplete the credit support even in the highly enhanced deals. Moody's has not been provided with adequate information to assess the implications of the loan sales on the outstanding ratings.

Moody's has downgraded the ratings on seven tranches and placed them on review for further downgrade, primarily due to the market value risk that these bonds could be exposed to in the future if there are more loan sales. The ratings also reflect Moody's updated loss expectations on the pool. The bonds placed on further review reflect the uncertainty and the potential for significant further downgrades.

Moody's will withdraw the ratings on a all 33 tranches of the nine Security National deals because it believes it has insufficient or otherwise inadequate information to support the maintenance of the ratings. Please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on www.moodys.com.

The principal methodology used in these ratings was "US RMBS Surveillance Methodology" published in November 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the rating

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 6.7% in December 2013 from 7.9% in December 2012 . Moody's forecasts an unemployment central range of 6.5% to 7.5% for the 2014 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 2014. 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. Any change resulting from servicing transfers or other policy or regulatory change can impact the performance of these transactions.

A list of these actions including CUSIP identifiers may be found at: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF354040

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.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of these transactions in the past six months.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.

As the section on loss and cash flow analysis describes, 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Kiran Mandrekar
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Bruce D. Fabrikant
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's takes action on $37.5 Million of Scratch and Dent RMBS issued by Security National
No Related Data.

 

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