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Rating Action:

Moody's takes action on Eurohome UK Mortgages 2007-2 plc

13 Feb 2009

GBP 201 million of debt securities affected.

London, 13 February 2009 -- Moody's Investors Service has today taken the following rating action on Eurohome UK Mortgages 2007-2 plc ("Eurohome 2007-2"):

- Class A2, Downgraded to Aa2; previously on 23 August 2007 Assigned Aaa.

Moody's has not taken any action for classes A1(A) and A1(B) and their rating remains unchanged (Aaa). Moody's did not rate classes A3, M1, M2, B1, B2 and C.

Today's rating action is mainly prompted by the worse-than-expected collateral performance and takes into consideration the increased portfolio loss expectation and the negative outlook for the UK housing market and UK economy.

The collateral performance of Eurohome 2007-2 has deteriorated within the last few reporting periods. As of the December payment date 34.3% of current portfolio balance (CB) was reported to be delinquent. During the last three payment dates, the 90+ delinquencies, excluding repossessions, appear to be stabilizing around 12% of current portfolio balance (CB) but the outstanding unsold repossession balance has increased from 0.4% of CB on the June 2008 payment date to 4.0% of CB on December 2008 payment date. During the same period, the cumulative realized losses have increased from for 0.01% to 0.15% of the original portfolio balance. The reserve fund, which has never built up to its target balance since closing, is currently equal to 78% of its required amount. In total there had been three reserve fund drawings, two draws on the first two reporting periods and another in December 2008. The first two draws were not disclosed until the last investor report due to a reporting error.

Moody's has assessed updated loan-by-loan information of the outstanding portfolio to determine the increase in credit support needed and the volatility of future losses. Taking into account the current amount of realized losses, and completing a roll-rate and severity analysis for the non-defaulted portion of the portfolio, Moody's has adjusted its loss expectations for this portfolio to 6.35% of original balance (original expected loss range was 3.05% to 3.45% of original balance). The AaaCE was also adjusted from a range of 25.9%-26.3% at closing to 42% after the review. The loss expectation and the AaaCE are the two key parameters used by Moody's to calibrate the loss distribution curve.

Today's rating action takes also into consideration the exposure to AIG Inc (A3, P-1 on review for downgrade), acting as guarantor of the swap counterparty in this transaction. The downgrade of AIG Inc. on 3rd of October 2008 from A2/P-1 to A3/P-1 resulted in certain rating related provisions being triggered under the relevant swaps. Each swap provides that, within 30 days of such provisions being triggered, the swap provider (Banque AIG, London Branch) must take suitable remedial action, such as posting collateral. Moody's has been informed that collateral has been posted for that purpose. However, the likelihood that the swap provider will continue to take remedial action depends, in part, on whether the performance of such action is guaranteed by AIG Inc. Although AIG Inc. guarantees the payment obligations of the swap provider, in Moody's view it does not guarantee performance obligations such as the obligation to post collateral. Please see the press release dated November 6, 2008 titled "Moody's Comments on Structured Finance Transactions with Swap Exposure to American International Group Inc". In view of the nature of the swap guarantee Moody's has also factored in the analysis the exposure to the swap counterparty due to payment mechanism of the interest rate and basis swap whereby the Issuer pays on a monthly basis all amounts of interest and principal collected and receives them back at the end of the quarter.

Eurohome 2007-2 closed in August 2007 and its current pool factor is 96.1%. The collateral included in Eurohome 2007-2 was originated by DB UK Bank. DB UK Bank has outsourced the day-to-day servicing to Vertex Mortgage Services Ltd, which is also the back-up servicer. Since early 2008 special servicing has been retained by DB UK Bank Limited.

Moody's monitors this transaction using the rating methodology for EMEA RMBS as described in the Rating Methodology reports "Moody's Approach to Rating UK RMBS" published in April 2005 , "Moody's Updated Methodology for Rating UK RMBS" published in November 2007 and "Revising Default/Loss Assumptions Over the Life of an ABS/RMBS Transaction" published in December 2008. There has been no rating action on the notes issued by Eurohome 2007-2 since the initial rating assignment in August 2007. Moody's will continue to monitor closely the performance of this transaction.

Please refer to the "UK Non-Conforming RMBS Q3 2008 Indices", which can be found on www.moodys.com under the Credit Index category of Structured Finance research.

Frankfurt
Marie-Jeanne Kerschkamp
Managing Director
Structured Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Kostas Skliros
Associate Analyst
Structured Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's takes action on Eurohome UK Mortgages 2007-2 plc
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