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Rating Action:

Moody's takes actions on Bayview's small business ABS

23 Jan 2015

Approximately $1 billion of asset-backed securities affected

New York, January 23, 2015 -- Moody's Investors Service has upgraded the ratings on six tranches from three securitizations, and downgraded the ratings on 61 tranches from 14 securitizations of small business loans issued by Bayview Commercial Asset Trusts. The loans are secured primarily by small commercial real estate properties in the U.S. owned by small businesses and investors.

Complete rating actions as follow:

Issuer: BayView Commercial Asset Trust 2004-1

Cl. A, Upgraded to Aa2 (sf); previously on May 31, 2012 Downgraded to Aa3 (sf)

Cl. M-1, Upgraded to A1 (sf); previously on May 31, 2012 Downgraded to A3 (sf)

Cl. M-2, Upgraded to A3 (sf); previously on May 31, 2012 Downgraded to Baa1 (sf)

Cl. B, Upgraded to Baa3 (sf); previously on May 31, 2012 Confirmed at Ba1 (sf)

Issuer: BayView Commercial Asset Trust 2004-2

Cl. B-1, Upgraded to Ba2 (sf); previously on May 31, 2012 Confirmed at Ba3 (sf)

Issuer: Bayview Commercial Asset Trust 2004-3

Cl. M-1, Upgraded to A2 (sf); previously on May 31, 2012 Downgraded to A3 (sf)

Issuer: BayView Commercial Asset Trust 2005-3

Cl. A-1, Downgraded to A3 (sf); previously on May 31, 2012 Downgraded to A1 (sf)

Cl. A-2, Downgraded to A3 (sf); previously on May 31, 2012 Downgraded to A1 (sf)

Cl. M-1, Downgraded to Baa2 (sf); previously on May 31, 2012 Downgraded to Baa1 (sf)

Cl. M-2, Downgraded to Baa3 (sf); previously on May 31, 2012 Downgraded to Baa2 (sf)

Cl. M-3, Downgraded to Ba1 (sf); previously on May 31, 2012 Downgraded to Baa3 (sf)

Cl. M-4, Downgraded to Ba3 (sf); previously on May 31, 2012 Downgraded to Ba2 (sf)

Cl. M-5, Downgraded to B1 (sf); previously on Apr 13, 2011 Downgraded to Ba3 (sf)

Cl. M-6, Downgraded to B2 (sf); previously on Apr 13, 2011 Downgraded to B1 (sf)

Cl. B-1, Downgraded to B3 (sf); previously on Apr 13, 2011 Downgraded to B2 (sf)

Issuer: BayView Commercial Asset Trust 2005-4

Cl. M-6, Downgraded to Caa3 (sf); previously on Mar 28, 2014 Downgraded to Caa2 (sf)

Cl. B-1, Downgraded to Ca (sf); previously on Mar 28, 2014 Downgraded to Caa3 (sf)

Issuer: BayView Commercial Asset Trust 2006-1

Cl. A-1, Downgraded to A3 (sf); previously on May 31, 2012 Downgraded to A2 (sf)

Cl. A-2, Downgraded to A3 (sf); previously on May 31, 2012 Downgraded to A2 (sf)

Cl. M-1, Downgraded to Baa3 (sf); previously on May 31, 2012 Downgraded to Baa2 (sf)

Cl. M-2, Downgraded to Ba1 (sf); previously on May 31, 2012 Downgraded to Baa3 (sf)

Cl. M-3, Downgraded to Ba2 (sf); previously on May 31, 2012 Downgraded to Ba1 (sf)

Cl. M-4, Downgraded to Ba3 (sf); previously on May 31, 2012 Downgraded to Ba2 (sf)

Cl. M-5, Downgraded to B1 (sf); previously on May 31, 2012 Downgraded to Ba3 (sf)

Cl. M-6, Downgraded to B2 (sf); previously on May 31, 2012 Downgraded to B1 (sf)

Cl. B-1, Downgraded to B3 (sf); previously on May 31, 2012 Downgraded to B2 (sf)

Cl. B-2, Downgraded to Caa1 (sf); previously on May 31, 2012 Downgraded to B3 (sf)

Issuer: Bayview Commercial Asset Trust 2006-4

Cl. A-2, Downgraded to Ba2 (sf); previously on May 31, 2012 Downgraded to Ba1 (sf)

Cl. M-2, Downgraded to Caa1 (sf); previously on Sep 13, 2012 Downgraded to B3 (sf)

Cl. M-3, Downgraded to Caa2 (sf); previously on Sep 13, 2012 Downgraded to Caa1 (sf)

Cl. M-4, Downgraded to Ca (sf); previously on Oct 31, 2013 Downgraded to Caa3 (sf)

Issuer: Bayview Commercial Asset Trust 2007-1

Cl. A-2, Downgraded to Ba2 (sf); previously on May 31, 2012 Downgraded to Baa3 (sf)

Cl. M-1, Downgraded to B2 (sf); previously on Sep 13, 2012 Downgraded to B1 (sf)

Cl. M-2, Downgraded to B3 (sf); previously on Sep 13, 2012 Downgraded to B2 (sf)

Cl. M-3, Downgraded to Caa1 (sf); previously on Sep 13, 2012 Downgraded to B3 (sf)

Cl. M-4, Downgraded to Ca (sf); previously on Mar 28, 2014 Downgraded to Caa2 (sf)

Cl. M-5, Downgraded to C (sf); previously on Mar 28, 2014 Downgraded to Caa3 (sf)

Issuer: Bayview Commercial Asset Trust 2007-2

Cl. A-1, Downgraded to Baa2 (sf); previously on May 31, 2012 Downgraded to Baa1 (sf)

Cl. M-1, Downgraded to Caa1 (sf); previously on May 31, 2012 Downgraded to B3 (sf)

Cl. M-2, Downgraded to Ca (sf); previously on May 31, 2012 Downgraded to Caa1 (sf)

Cl. M-3, Downgraded to C (sf); previously on May 31, 2012 Downgraded to Caa2 (sf)

Issuer: Bayview Commercial Asset Trust 2007-3

Cl. M-1, Downgraded to B2 (sf); previously on May 31, 2012 Downgraded to Ba3 (sf)

Cl. M-2, Downgraded to B3 (sf); previously on May 31, 2012 Downgraded to B1 (sf)

Cl. M-3, Downgraded to Caa1 (sf); previously on May 31, 2012 Downgraded to B2 (sf)

Cl. M-4, Downgraded to Ca (sf); previously on Oct 31, 2013 Downgraded to Caa2 (sf)

Cl. M-5, Downgraded to C (sf); previously on Oct 31, 2013 Downgraded to Ca (sf)

Issuer: Bayview Commercial Asset Trust 2007-4

Cl. M-1, Downgraded to Ca (sf); previously on Mar 28, 2014 Downgraded to Caa2 (sf)

Cl. M-2, Downgraded to C (sf); previously on Oct 31, 2013 Downgraded to Ca (sf)

Issuer: Bayview Commercial Asset Trust 2007-5

Cl. A-4, Downgraded to Caa3 (sf); previously on Mar 28, 2014 Downgraded to Caa2 (sf)

Issuer: Bayview Commercial Asset Trust 2007-6

Cl. A-4A, Downgraded to Caa3 (sf); previously on Oct 31, 2013 Downgraded to Caa1 (sf)

Cl. A-4B, Downgraded to Caa3 (sf); previously on Oct 31, 2013 Downgraded to Caa1 (sf)

Cl. M-1, Downgraded to C (sf); previously on Oct 31, 2013 Downgraded to Ca (sf)

Issuer: Bayview Commercial Asset Trust 2008-2

Cl. M-1, Downgraded to B3 (sf); previously on May 31, 2012 Downgraded to B2 (sf)

Cl. M-2, Downgraded to Caa3 (sf); previously on Oct 31, 2013 Downgraded to Caa2 (sf)

Cl. M-3, Downgraded to C (sf); previously on Oct 31, 2013 Downgraded to Ca (sf)

Issuer: Bayview Commercial Asset Trust 2008-3

Cl. M-3, Downgraded to Caa3 (sf); previously on Oct 31, 2013 Downgraded to Caa2 (sf)

Cl. M-4, Downgraded to C (sf); previously on Oct 31, 2013 Downgraded to Ca (sf)

Issuer: Bayview Commercial Asset Trust 2008-4

Cl. M-5, Downgraded to Caa3 (sf); previously on Oct 31, 2013 Downgraded to Caa2 (sf)

Cl. M-6, Downgraded to C (sf); previously on Oct 31, 2013 Downgraded to Ca (sf)

Issuer: Bayview Commercial Mortgage Pass-Through Trust 2006-SP2

Cl. A, Downgraded to Baa1 (sf); previously on May 31, 2012 Downgraded to A3 (sf)

Cl. M-1, Downgraded to Ba1 (sf); previously on May 31, 2012 Downgraded to Baa3 (sf)

Cl. M-2, Downgraded to Ba3 (sf); previously on May 31, 2012 Downgraded to Ba2 (sf)

Cl. M-3, Downgraded to B1 (sf); previously on May 31, 2012 Downgraded to Ba3 (sf)

Cl. M-4, Downgraded to B3 (sf); previously on May 31, 2012 Downgraded to B1 (sf)

Cl. M-5, Downgraded to Caa1 (sf); previously on May 31, 2012 Downgraded to B2 (sf)

Cl. M-6, Downgraded to Caa2 (sf); previously on May 31, 2012 Downgraded to B3 (sf)

Cl. B-1, Downgraded to Ca (sf); previously on Mar 28, 2014 Downgraded to Caa2 (sf)

RATINGS RATIONALE

The upgrade actions related to the 2004-1, 2004-2 and 2004-3 securitizations were prompted by a build-up in credit enhancement due to increasing reserve account, amortization of the pool, and availability of excess spread in combination with relatively stable collateral performance. Available amount in reserve accounts for 2004-1, 2004-2 and 2004-3 securitizations increased to, respectively, 23%, 17% and 15% of the outstanding pool balance as of the December 2014 remittance date from, respectively, 18%, 13% and 12% of the outstanding pool balance as of the December 2013 distribution date.

The downgrades are generally due to continued realized losses on the underlying pools in combination with depleted credit enhancement from overcollateralization and subordinate tranches. Over the past year, cumulative net losses for Bayview 2005-3, 2005-4, 2006-1, 2006-4, 2006-SP2, 2007-1, 2007-2, 2007-3, 2007-4, 2007-5, 2007-6, 2008-2, 2008-3 and 2008-4 increased to a range of 17% to 31% as of the December 2014 distribution date, from a range of 16% to 29% as of the December 2013 distribution date, in each case as a percent of the original pool balance. As a result of continuing losses, Moody's believes that a full principal payment to lower subordinate tranches which have been downgraded to Ca or C ratings is unlikely.

Over the past 12 months for the Bayview portfolios excluding the Canadian transactions, delinquencies of 60 days or more, including loans in foreclosure and REO, range from 10% to 26% of the outstanding pool balances as of December 2014 remittance date versus 13% to 22% as of December 2013 remittance date. Average severities are still high in the 75% to 90% range.

A key factor in Moody's updated loss projections is its evaluation and treatment of modified loans. Bayview Loan Servicing has modified approximately 30% to 51% of the loans it now classifies as current in the deals affected by today's rating actions. Most of these loans had performance issues and were delinquent before modification and are therefore more likely to become delinquent in the future than non-modified loans. Moody's evaluation of loan-level data shows that these current, modified loans are twice as likely to become defaulted compared to current, non-modified loans. Moody's accounted for this likelihood in its loss projection methodology described below.

METHODOLOGY

The principal methodology used in these ratings was "Moody's Global Approach to Rating SME Balance Sheet Securitizations" published in January 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's evaluated the sufficiency of credit enhancement by first analyzing the loans to determine an expected lifetime net loss for each collateral pool. Moody's compared these net losses with the available credit enhancement, consisting of overcollateralization, subordination, excess spread, and a reserve account if any. For the lower subordinate tranches, Moody's identified relatively near term future writedowns by examining the the expected losses from loans in foreclosure and REO in relation to a tranche's available credit enhancement.

To forecast expected losses for the Bayview small business ABS collateral pools, Moody's evaluated each pool according to the delinquency and modification status of the underlying loans, applying different roll rates to default to loans according to each status. In order to determine the roll rates to default, Moody's first assessed the past 12 months of monthly roll rate behavior for loans according to their modification and delinquency status. Then, to translate this recent historical data into lifetime default rates, Moody's applied the recent roll rates to each delinquency and modification category for a period of 15 months. Moody's then applied monthly roll rates representative of stable historical norms for the remainder of the period over which Moody's calculates the loss.

This approach leads to a wide range of lifetime loan default rates depending on vintage, modification status and delinquency status. For modified current loans, the lifetime default rate was 20%, double the lifetime default rate estimate of 10% for non-modified current loans. In the pools of deals affected by today's rating actions, roughly 30% to 51% of loans classified as current have been modified by Bayview Loan Servicing and are now classified as current. For delinquent loans, the lifetime default rates range from 30% to 70%. For loans in foreclosure or REO, the lifetime default rates are roughly 40% to 75% and 100%.

For loss severities, depending on vintage, Moody's generally applied 65% to 75% severities for the modified loans and 70% to 100% severities for the non-modified loans. Recent severities have been, in aggregate, 90% for non-modified loans and about 75% for modified loans. Because the ultimate re-default risk of small business loan modifications and the success of Bayview's modification program is unknown, Moody's considers the potential volatility of expected losses for these pools to be higher than pools with no modifications.

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

Up

Levels of credit protection that are higher than necessary to protect investors against expected losses could drive the ratings up. Losses could decline below Moody's expectations as a result of a decrease in seriously delinquent loans or lower severities than expected on liquidated loans.

Down

Levels of credit protection that are insufficient to protect investors against expected losses could drive the ratings down. Losses could rise above Moody's expectations as a result of an increase in seriously delinquent loans and higher severities than expected on liquidated loans.

Other methodologies and factors that Moody's may have considered in the process of rating these transactions appear on Moody's website. More information on Moody's analysis of this transaction is available at www.moodys.com.

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 received and took into account a third party assessment on the due diligence performed regarding the underlying assets or financial instruments in these transactions and the assessment had a neutral impact on the credit rating.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

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.

Yalan Tao
Associate 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

Amelia Tobey
VP - Sr Credit Officer/Manager
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 actions on Bayview's small business ABS
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