Moody's takes action on Home Equity Mortgage Trust transactions
New York, December 22, 2008 -- Moody's Investors Service has downgraded the ratings of 23 tranches
issued in six Home Equity Mortgage Trust transactions. Underlying
securities' collateral consists primarily of closed-end second
lien residential mortgage loans (CES).
The ratings on the securities were monitored by evaluating factors Moody's
determined to be essential in the analysis of securities backed by such
loans. The salient factors include: i) Moody's review
of the nature, sufficiency, and quality of historical loan
performance information, ii) analysis of the collateral composition
and pool credit performance including prepayment, loan delinquency
and loss data, iii) consideration of the transaction's capital
structure and related allocations of collateral cash flows and losses,
and iv) a comparison of current credit enhancement levels to updated Moody's
pool loss projections based on present collateral credit performance.
When analyzing ratings for CES and HELOC transactions, Moody's
projects cumulative losses for each deal based on a collateral analysis
of the deal's Constant Prepayment Rate (CPR) and Constant Default
Rate (CDR).
CPR - CPR is based on the average of the last six months 1-month
CPR.
CDR - There are two approaches for determining pool CDR.
The first approach calculates CDR based on pool loan losses from the previous
twelve months, i.e. recent losses. A second
approach is based on pipeline losses -- losses derived from days-aged
delinquencies and Moody's assumptions for default based on days
delinquent, in foreclosure, or liquidation, and the
severity of loss given default. Moody's assumes 100%
severity for second liens, including both CES and HELOCs.
After the CDR is calculated using the two methods, the effective
CDR for loss projection purposes is determined by using a weighted average
of the CDRs as determined by the recent loss and pipeline loss approaches
-- with weightings determined on a transaction by transaction basis.
Moody's assumes that the CDR will not decline for the next three
years and will decline subsequently for the life of the deal under a schedule,
typically reducing by 50% in year 4 and remaining constant thereafter.
Based on calculated CPR and CDR, Moody's calculates projected
deal-specific cumulative losses and the weighted average life of
the deal. The credit enhancement calculation can also include credit
for excess spread, i.e. the aggregate, positive
difference in the weighted average loan coupon and the all-inclusive
securities' interest and deal fees, including servicing.
Excess spread benefit is calculated by multiplying the stressed annualized
excess spread by the weighted average life of the deal.
Aggregate credit enhancement which combines subordination benefit (including
over-collateralization and/or reserve accounts) and excess spread
benefit is compared with projected cumulative losses for the deal to derive
coverage multiples and associated ratings by deal tranche. Moody's
will analyze tranche coverage multiples after consideration of timing
of tranche repayment and allocation of losses (if any).
Methodologies and factors that may have been considered in the process
of rating this issue can be found at www.moodys.com in the
Rating Methodology and Performance directory.
Issuer: Home Equity Mortgage Trust 2003-6
Cl. M-2, Downgraded to Aa3; previously on 12/21/2006
upgraded to Aaa
Cl. B-1, Downgraded to Baa1; previously on 12/21/2006
upgraded to A2
Cl. B-2, Downgraded to Baa1; previously on 12/21/2006
upgraded to A2
Issuer: Home Equity Mortgage Trust 2003-7
Cl. B, Downgraded to Caa2; previously on 12/21/2006
upgraded to Aa3
Issuer: Home Equity Mortgage Trust 2004-1
Cl. B, Downgraded to Caa2; previously on 12/21/2006
upgraded to A2
Issuer: Home Equity Mortgage Trust 2004-2
Cl. M-2, Downgraded to Aa2; previously on 12/21/2006
upgraded to Aaa
Cl. B-1, Downgraded to Baa1; previously on 12/21/2006
upgraded to A1
Cl. B-2, Downgraded to B3; previously on 12/21/2006
upgraded to A2
Cl. B-3A, Downgraded to Caa2; previously on 12/21/2006
upgraded to A3
Cl. B-3F, Downgraded to Caa2; previously on 12/21/2006
upgraded to A3
Issuer: Home Equity Mortgage Trust 2004-4
Cl. M-3, Downgraded to Baa1; previously on 10/18/2004
Assigned Aa3
Cl. M-4, Downgraded to Baa2; previously on 10/18/2004
Assigned A1
Cl. M-5, Downgraded to Ba3; previously on 10/18/2004
Assigned A2
Cl. M-6, Downgraded to B3; previously on 10/18/2004
Assigned A3
Cl. B-1, Downgraded to Caa1; previously on 10/18/2004
Assigned Baa1
Cl. B-2, Downgraded to Caa2; previously on 10/18/2004
Assigned Baa2
Cl. B-3, Downgraded to Ca; previously on 10/18/2004
Assigned Baa3
Issuer: Home Equity Mortgage-Backed Pass-Through Certificates,
Series 2004-3
Cl. M-3, Downgraded to Aa2; previously on 12/21/2006
upgraded to Aaa
Cl. M-4, Downgraded to Baa3; previously on 12/21/2006
upgraded to A1
Cl. M-5, Downgraded to B3; previously on 12/21/2006
upgraded to A2
Cl. B-1, Downgraded to Caa2; previously on 12/21/2006
upgraded to Baa1
Cl. B-2A, Downgraded to Ca; previously on 12/21/2006
upgraded to Baa1
Cl. B-2F, Downgraded to Ca; previously on 12/21/2006
upgraded to Baa1
A list of these actions including CUSIP identifiers may be found at:
Excel: http://www.moodys.com/cust/getdocumentByNotesDocId.asp?criteria=PBS_SF148626
For more information please see www.moodys.com.
New York
Navneet Agarwal
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Aashish Marfatia
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653