by Tanta on 7/16/2007 11:00:00 AM

You can't make stuff like this up. Well, OK, you can make stuff like this up, but you can't keep from snorting coffee through your nasal passages when you read it. From Securitization.net, "Subprime Downgrades Sideline ABS Issuance":

The asset securitization market usually does not stop issuing new deals for any reason, except perhaps the usual holiday breaks. After enduring several days of downgrades on subprime MBS by Moody's Investors Service, and warnings of more from Standard & Poor's, however, the ABS market largely decided to hold back from issuing new debt last week.

Except for our occasional visits to our second homes on Martha's Vinyard, we've never seen a good reason to stop issuing new deals. It took downgrades from the rating agencies to make us quit for a minute.

Initially stunned by the news, the ABS market drove the ABX indices to new lows and pushed spreads wider, according to market observers. Prices on the double-A tranche of ABX 2006-2 and 2007-1 fell three and four basis points, respectively, according to Credit Suisse. The triple-B prices had already dropped around two and three basis points over the past two weeks, respectively, and Wednesday's news only forced them to trade down further. The ABX 2007-1's triple-B-minus tranche breached the $50 point, when it traded at $49, said Credit Suisse.

Stunned, I tell you. We were totally blindsided here. We've never had to stop doing deals before.

"No one is surprised by it," one sell-side professional said. "People are very upset at the rating agencies, that they misjudged things as badly as they did."

OK, well, you see, "stunned" isn't the same thing as "surprised." See, us insiders knew a long time ago that this stuff was pretty squirrelly, but by God we weren't going to stop issuing more of it until the rating agencies told us what we already knew. It's not like we're going to do anything based on our own analysis.

Frequent MBS issuer C-BASS was planning to come to market with a $433 million transaction, but the latest news from the rating agencies appeared to have affected pricing on those bonds already. The triple-A rated tranches were getting price talk at 12 basis points over the one-month Libor for the bonds with two-year durations. Pricing was as wide as 34 basis points on the six-year triple-As. As for the deal's four-year triple-B tranches, pricing talk ranged from 300 basis points to 750 basis points.

"We're guessing that the mortgage guys are sitting on their hands," said one market source, noting that most deals that were expected to price last week would probably come from overseas.

I'm more inclined to think that there are a couple of "mortgage guys" who are sitting on some uncomfortable chairs in some upper-floor conference rooms across from some accounting guys who have that look on their sour little faces, myself, but by all means let them claim to be sitting on their hands if that's what they have to do to reassure their little account-holders.

How can you recognize a major market shift? Nobody can quite get their stories straight. Everybody was shocked by the rating agencies, but everybody is mad at them because everybody knew all along that this was coming. Everybody knows that the stuff hasn't even been downgraded enough, but everybody's shocked over the spreads on new deals of the same caliber. Clearly it's going to take a while before we figure out how to reconcile our wounded innocence with our seasoned vigilance. Stay tuned.

by Calculated Risk on 7/16/2007 09:59:00 AM

"Market conditions became increasingly challenging throughout the second quarter of 2007. The housing market continues to soften, and delinquencies and defaults continue to rise. Additionally, interest rates, price competition in the residential lending markets and secondary market volatility have all increased. However, Countrywide's residential funding volume in June was strong, driven primarily by seasonal purchase activity and higher application volumes in preceding months."
David Sambol, President and Chief Operating Officer, July 16, 2007.

by Tanta on 7/16/2007 08:26:00 AM

I like Janet Tavakoli:

Hedge funds instead use mathematical models of their own to estimate and report the value of their CDO holdings to investors -- a practice known as "marking to model."

Recent troubles at hedge funds run by Bear Stearns, Braddock Financial Corp. and United Capital Markets have highlighted the problems inherent in that approach. Even so, fund managers are resisting market views on the value of subprime assets and continuing to "mark to model," claiming declines represent short-term volatility.

"'Mark to model' is a joke," said Janet Tavakoli, president of Tavakoli Structured Finance, a Chicago consulting firm. "What you need to do now is vet the underlying collateral" in CDOs instead of just modeling, which wasn't done earlier, she said. "It's grubby, roll-up-your-sleeves kind of work."

Oh, now we find out that we should have skipped the install of Mathematica 6.0.1 and just handed some of those grubby loan files off to Euelna in the Collateral Review Department . . .

We seem to be on the verge of the revelation that pricing models and rating models and value-at-risk models and Excel spreadsheets and 10-key calculators only work when all of the relevant data inputs are collected and verified. Sit down, folks. If this keeps up, we will learn that those fancy automated underwriting systems that have been using the borrower's unverified assertions about income and the broker's bald-faced lies about the sales contract and the appraiser's idle musings about the market appetite for more granite countertops are producting unreliable estimates of default probability . . .

They shoot fund managers, don't they?

by Tanta on 7/15/2007 12:37:00 PM

As some of you may remember, there was a fair amount of uproar late last year when the GSEs announced that the conforming loan limit--the maximum loan amount for mortgages purchased by the GSEs--would remain at $417,000. The limit remained unchanged even though the national average price calculated by the Federal Housing Finance Board, the number the GSEs are required by law to use, decreased by 0.16% (which would, applied directly, have resulted in a new conforming loan limit of $416,300).

The legal and regulatory issues surrounding the calculation of the conforming loan limit are so involved and confusing that even the more heroic UberNerds tend to give up in frustration. What frequently gets lost in arguments over interpretations of 12 U.S.C. 1717(b)(2) and methodological changes in FHFB's MIRS (go here for OFHEO's recap, if you dare) is the whole point of a conforming limit. Of course it's a safety and soundess concern, but it's also a question of mission or mandate for Fannie, Freddie, and FHA: these government-sponsored enterprises and agencies have always been mandated to provide liquidity to the low-to-moderate (moderate meaning "average") housing market, not its high end.

In any case, it has long been a source of amusement to industry-watchers to hear the endless whining of the mortgage lobby over the question of increasing conforming loan limits (which by statute increase the FHA limit accordingly). The same market participants who regularly have a cow over Fannie and Freddie's retained portfolios and capital adequacy do have a tendency to throw that "safety and soundness" religion out the window when it comes to the loan limits.

To whit, here's the joint response of MBA, NAHB, and NAR to OFHEO's (modest) proposal to adjust the regulatory guidance for conforming loan limits in such a way that would allow for potential decreases to the limit after two years of declining home prices:

Our three organizations represent major components of the housing and mortgage markets – builders, realtors and lenders. It is our concerted view that the Proposed Guidance would be detrimental to the national economy, home buyers, current home owners, the industries that serve homeownership, and to the success of the housing missions of the Enterprises, the Federal Housing Administration (FHA), and the Veterans Administration (VA). Given the importance of the CLL to the housing industry, changes such as those OFHEO proposes should be widely circulated for public comment through the Federal Register. Not only is the proposal bad public policy, it does not appear to be authorized under current law, which only permits increases in the loan limit.

The current statutes state that the conforming loan limit is adjusted annually by “adding to each such [previous] amount . . . a percentage thereof equal to the percentage increase during the twelve-month period ending with the previous October in the national average one-family house price in the monthly survey of all major lenders conducted by the Federal Housing Finance Board” (emphasis added).1 The Enterprises may not purchase loans above the conforming loan limit. The conforming loan limit also impacts limits for FHA and VA loans, as FHA and VA loan limits are tied to the CLL. In fact, a decrease in the CLL could have an adverse budget impact if the result is that borrower access to the FHA and VA loan programs is limited and the two agencies produce lower guarantee and insurance fee income.

As you are aware, the housing sector is currently undergoing a correction, and there is concern about the availability of funds for the refinancing of loans and for new loans. Reductions in the conforming loan limit could impair the ability of some borrowers to refinance out of subprime mortgages, which is of particular concern for families with problematic mortgages, as well as prevent some first-time home buyers from obtaining lower cost financing on conforming, FHA or VA loans.

It's hard to match the hilarity of the straight-faced claim that a 1.00% decrease in the FHA loan limit would have an "adverse budget impact" that we should worry about. (It is a fact that the FHA's mortgage insurance fund is currently a "negative subsidy," meaning that the excess of premiums over losses does show as a gain to the federal balance sheet. That doesn't exactly make it a source of revenue.)

But I'm more interested in how a decrease in the conforming limit "could impair the ability of some borrowers to refinance out of subprime mortgages." How many, do you suppose, is "some"? Strangely enough, our friends at MBA, NAHB and NAR don't quantify that.

Courtesy of S&P:

According to S&P, the average subprime loan balance in Q107 was $190,832. These balance figures come from rated RMBS subprime securitizations, which by S&P's estimate include about 10% second liens (most second liens are securitized in the ABS category, not the RMBS category). So that average will be lower than the actual average indebtedness of subprime borrowers in recent vintages. Credit Suisse estimates the average loan size for subprime purchase-money mortgages at $181,300 in 2004, $197,900 in 2005, and $199,800 in 2006.

You can do a lot of upward adjustments to those numbers to account for subordinate financing and still wonder just how many subprime borrowers' refinance problems have anything to do with loan amount (rather than LTV and CLTV, for instance). Of course the whole exercise is a bit pointless if you simply stop to ask why conforming loan limit calculations should have anything to do with bailing out near-jumbo subprime loans in the first place. Nonetheless, I'd like to hear the MBA cough up some data to back up their claim that some non-trivial number of subprime borrowers could lose a refinance opportunity in the absence of an increase to the conforming limits. If you're going to ask the GSEs and FHA to take on the increased marginal risk of higher-balance loans of worse quality, you might want to actually quantify the risk of their failure to do so.

by Tanta on 7/14/2007 12:02:00 PM

Dedicated to all the paranoiacs of the web.

(Yes, I'd really like to dedicate one to all the sockpuppets of the web using a different song by the same artist, but this blog has a G rating to maintain.)

Enjoy, my crazies.

by Tanta on 7/14/2007 09:00:00 AM

I don't know if you all have been following the story of Whole Foods CEO John Mackey, who has apparently been frittering away his free time posting comments on Yahoo! Finance message boards under the handle "rahodeb." The burden of wisdom of "rahodeb" appears to have been to talk up Whole Foods and talk down Wild Oats Markets, a competitor and recent acquisition target. "Rahodeb" is, apparently, an anagram of Deborah, Mackey's wife's first name. There's some stunning creativity.

Herb Greenberg has been a little disappointed in his blog commenters, who haven't shown enough moral outrage over this, so do let me officially register moral outrage. Mackey's behavior shows what the great Molly Ivins once called "the ethical sensitivity of a walnut," and I for one hope the SEC cleans his clock but good. The fact that the SEC occasionally displays the regulatory sensitivity of a peanut cluster is neither here nor there. A girl can dream.

That said, I have to admit that my moral outrage over Mackey's dishonesty is rather tempered by my inability to take seriously the forum in which this behavior was displayed. I have, on a few occasions, descended into the cesspool of Yahoo! Finance message boards, in a more or less ethnomethodological mood, and my unscientific findings--I couldn't possibly read enough of that semi-literate flaming nonsense to achieve anything like respectable sampling--echo Obi Wan Kenobe's assessment of Mos Eisley: you will never find a more wretched hive of scum and villainy. While of course Mackey has no business playing stockpuppet, on the other hand I can't think of a better place for him to do it. Anyone who trades with real money based on anything gleaned from these boards probably deserves to be fleeced by an insider.

Those of you who have been hanging around this site for a while may remember that I got a bit severe in the comments a few months ago with our resident short-sellers. Anyone who trades short is of course welcome to read and participate in this blog, and any reader and participant is welcome to short, if that's what you want to do with your money. However--and this will probably become relevant again as Q2 earnings releases are upon us again--no one is welcome to try to turn this blog into a short forum.

More particularly, no one is invited to take anything that CR or I might say about homebuilders or mortgage originators or any other publically-traded party as investment advice. We can't stop you from doing that; we can only warn you that neither of us invests our own money based on the ramblings of anonymous internet posters, and we therefore wouldn't recommend the strategy to anyone else. If you are not treating what you read on this blog with the same critical thinking skills and fact-checking habits that you would use for any other part of the internet (not to mention the daily papers), then you aren't calculating your risk.

My own take on the Yahoo! boards is that they're generally a recreational form. So is this blog. The difference, by and large, involves what you find amusing. I'm personally enough of a libertarian to be unperturbed by other people's tastes in recreation, as long as all parties are of the age of consent and the decibel level stays under control, particularly on those days when it's cool enough for us to have our windows open (hint, Tanta's neighbors). So people who wish to spend their time on message boards in which flames, insults, and merely asinine comments way outnumber anything that could be called information or intelligent analysis are free to do that, as far as I'm concerned.

Readers of this blog tend to want something else, and we try to maintain an environment in which they'll get something else. There are any number of ways one can do that, and we are perfectly willing to use the delete key in the comment section when we need to. Mostly, though, we just keep posting on the things we find interesting--many of which are guaranteed to bore the pants off the Yahoo! crowd--and relying on our regular commenters to help us set standards of discourse that discourage long threads composed entirely of "this stock sux."

We have, however, occasionally had someone pop up in the comments who claims to be an insider or a high-roller investor who, out of perfectly altruistic motives, wants to tell us all about some great long or short opportunity. We are not, on the whole, kind to such people, although I like to think we are unkind with more grace, wit, and literacy than you'll find in other parts of the net. Broad-minded as we are, we believe that Calculated Risk is not a public accommodation: sockpuppets and stockpuppets and astroturfers (and garden-variety flamers) have plenty of places to play on this big world wide web--Yahoo! comes to mind as an example--and so we are not under any first amendment obligation to allow them to play here.

We are, as a community, so sensitive to this matter that we have, I think, gone rather overboard on one or two occasions in tossing around accusations of "shilling" or "talking up one's book" to posters who are simply making their case with too much enthusiasm and too little self-consciousness. That's unfortunate; there is always the danger of confusing skeptical-minded caution with mere contempt for difference of opinion. I was, personally, rather disgusted a few months ago by some of the comments about Freddie Mac's economist Frank Nothaft, regarding whose projections for home sales CR had posted some critical comments. Like CR, I think Nothaft's projections were too optimistic. Like CR, I also think rational, informed, highly-skilled people can be wrong--it's happened to me once or twice, you know--and I was highly put off by comments branding the man a "shill."

I suppose shilling, like beauty, is in the eye of the beholder, but I am willing to flat-out assert that not everybody with an institutional affiliation is a shill, and that overuse of that epithet doesn't get us anywhere. Real shills should be exposed whenever one can do so--we've devoted a fair amount of time to laying into David Lereah, formerly of NAR--when they appear to be getting enough attention or taken seriously enough by the mainstream press or financial community that exposure of them matters. But, for this blog at least, "exposure" means going after the details and facts presented with analytical rigor; you need to do your homework before you earn the right to brand someone as dishonest.

Mackey, of course, deserves heaps of contempt not just for being dishonest, but for contributing to the cynicism about the internet as a form of information sharing within the financial community. Had he posted to message boards--or even something as respectable as this blog--under his own name, declaring clearly his interest in the matter and staying on the right side of Reg FD, among other things, he would undoubtedly have been welcomed into the community as a participant (subject to the same critical standards as anyone else is). Having shown himself to be just another shill trying to manipulate small-time retail investors unwary enough to rely on Yahoo! messages for investment advice, of course, he simply provides more reason for us to think that corporate America still considers the internet to be just one more space that can be polluted with ugly marketing strategems and milked for enough chatter to boost value of the executives' stock options.

I still think the best possible response to that is to fail to fall into the trap, or to make it easier for the likes of Mackey (or his smaller-time fellow puppets) to manipulate us. That requires that we keep our bullshit detectors functioning at all times, and also that we refuse to become so cynical that we trust no one. My own strategy is to focus not on identities--we're mostly all anonymous here--but on the words on the screen. Anonymity can, of course, open the door to Mackey-style dishonesty, but it can also force us to stop giving an idea or an analysis too much or too little credit based on the identity of the writer, and force us to engage directly with the ideas and facts themselves. Certainly one always wants to ask of anyone--me, CR, our commenters--why we're taking the time and energy to do this. What do we gain?

In our particular case, what we gain is a kind of intellectual pleasure (and a few generous tips to keep us in coffee and hiking boots, as the case may be). Speaking for myself, there is no intellectual pleasure in arriving at the conclusion that everyone else in the world is either a shill or an idiot, and then repeating that bit of wisdom endlessly. Frankly, when one does encounter shills and idiots, it's rather more a chore than a lark to have to drag them into the light of day, although that's a chore we're willing to perform when it seems important to do so. It's a chore because you need some good hard facts behind you before you make such accusations, if you're going to be something other than a Yahoo! board.

Both CR and I write anonymously, but we do it in a certain way: we write as if we were writing under our own names. In other words, we think of our online identities as having a reputation, as much as our personal identities do, and all reputations have to be maintained by a consistency of approach. It takes time and painstaking effort to build an online reputation, since of course the normal cues people rely on--your resume, as it were--are absent. In short, insofar as people decide CR and I know what we're talking about, it's because people analyze what we say, compare it to other sources, subject it to fact-checking, and come to a more or less rational assessment of it. It's absolutely worthless to try to hide the fact that both of us have a number of years of experience in corporations, but the point for our readers remains what we're doing with that experience right now--what we have to say, today, on the blog--not whether some past title at some company or another gives us some kind of authority to which anyone should appeal.

Mackey is simply a predator: someone who decided that the anonymity of the internet provided a great cover under which he could disseminate information that would put money in his pocket. Undoubtedly everyone on the Yahoo! boards is trying to make a buck--more or less successfully, of course. But I also don't doubt that most of the posters on Yahoo! are, in fact, the amateurs they sound like. Many of our commenters are the professionals they sound like, which is one reason why we are so vigilant in our comments about problems of insider dissemination or degeneration of discussions into stock tips. (Stock tips seem to be the problem; I can't get anyone interested enough in coupon-clipping to have problems with bond tips.) Of course, we have a few yahoos too.

All we can do is remain vigilant, and remind each other that online communities can be very fragile: too little skepticism and the trolls and flamers and true shills take over, too much and the thing becomes another Church of the Paranoid, where every post and every comment is just another bit of preaching to that section of the choir that spends its days being consumed by its own need to believe the worst about the world and everyone in it.

All that was probably more than a thousand words--I do natter on--so here, for those of you who made it all the way to the end, is something worth more, courtesy of a dear commenter of ours who will be given credit for it if he so requests. I think it sums up our approach to blogging rather well:

by Tanta on 7/13/2007 10:18:00 AM

Hey! It's Friday the 13th! Anybody want to buy a subprime mortgage company?

No? How about some hodge-podge funds?

No? How about some nice European corporate debt? We hear it deteriorates only "gradually."

Oh well. There's always treasuries . . .

Or stocks:

Consider the latest reading of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term market timing newsletters tracked by the Hulbert Financial Digest. As of Thursday night, the HSNSI stood at 40.6%.

In contrast, at the stock market's late-February high, when the Dow was below 12,800, the HSNSI stood at 62.4%.

This is an amazing contrast. The stock market, in fits and starts, has managed to tack on more than a thousand points while simultaneously pushing the average market timer away from the bullish camp.

Normally, of course, advisers become more bullish and exuberant as the stock market rises. The fact that just the reverse happened over the last three months is quite unusual - and bullish.

To appreciate why, it can be helpful to imagine a bull market as a bucking bronco in a rodeo, trying its darndest to throw everyone off its back on the way to the other side of the ring. By doing exactly what it's supposed to do, this bull market is revealing itself to be very healthy indeed.

Okie dokie.

by Tanta on 7/13/2007 08:34:00 AM

From the Census Bureau, "Advance Monthly Sales for Retail Trade and Food Services":

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $373.9 billion, a decrease of 0.9 percent (±0.7%) from the previous month, but 3.8 percent (±0.7%) above June 2006. Total sales for the April through June 2007 period were up 3.9 percent (±0.5%) from the same period a year ago. The April to May 2007 percent change was revised from +1.4 percent (± 0.7%) to +1.5 percent (± 0.3%).

Retail trade sales were down 1.0 percent (±0.7%) from May 2007, but were 3.5 percent (±0.8%) above last year. Nonstore retailers were up 9.5 percent (±4.5%) from June 2006 and sales of health and personal care stores were up 7.0 percent (±1.7%) from last year.

You don't get the pretty updated chart you usually get because CR is spending a long weekend getting high climbing mountains and he doesn't let me mess with his charts. Last month's chart is here.

by Tanta on 7/13/2007 07:41:00 AM

Yes, I mean utter worthlessness. I have seen one or two unhelpful Fed Letters in my time, but this one, "Comparing the Prime and Subprime Mortgage Markets," brings a remarkably shallow grasp of the subject to bear on a perfectly vacuous thesis in order to produce three and a half pages of tripe. If this is the sort of advice the Fed Banks are taking from "economists," then no bloody wonder we're in trouble.

Here's how it starts:

We show that the subprime mortgage market is facing substantial problems, as measured by delinquency rates, while the prime mortgage market is experiencing more typical delinquency rates, i.e., at historical averages (see figure 1). Within the subprime mortgage market, we observe a substantial increase in delinquency rates, mostly for adjustable-rate mortgages (ARMs). Since the subprime ARM market is less than 7.5% of the overall mortgage market and a vast majority of subprime loans are performing well, we believe that the subprime mortgage problems are not likely to spill over to the rest of the mortgage market or the broader economy.

That's it. In three and a half pages, the authors demonstrate that subprime ARMs are the segment performing at worse than "historical" rates of delinquency, and that they are indeed 7.5% of the outstanding mortgage book. What we never get is a statement of what it might mean for "subprime problems" to "spill over to the rest of the mortgage market or the broader economy." What, exactly, does that mean? Is the implication that the "subprime problem" could "spill over" if it were only a bigger piece of the mortgage pie? What, exactly, would be the mechanism of this "spill over"? If you guessed that it might have something to do with declining MEW and downward spirals of home values due to subprime foreclosure waves, you might have a point, but neither of these issues is raised in the Fed Letter. Apparently, on Chicago Fed's planet, things just "spill over" when the bucket gets full enough of delinquencies.

The whole thing is littered with irritating mischaracterizations of both mortgage lending practices and recent so-called "bailout" initiatives, the latter of which involves throwing around some numbers ($20 billion from Freddie Mac, a billion from Citi and BoA) without offering any analysis of how far that goes to sort out the $1.5 trillion in subprime loans on the books. You get this level of analysis on Bloomberg (and you get it more timely).

Dear Chicago Fed: we're all really tired of rehashing sound-bites. How about you using the institutional smarts you have to answer some interesting questions for a change? Such as: how did we get so many subprime borrowers in the first place? Do states like Michigan and Indiana have high rates of delinquency and default because of employment woes, or high rates subprime originations because of employment woes? Is it possible that the "historically" low rate of prime mortgage default exists because subprime has been available to accept the "spill over"? What happens when the lender of last resort goes away?

Look, there are two reasons why the default rate on prime loans is as low as it is. The first, obviously, is that decent credit standards in the first place limit the number of loans that experience delinquency. The second is that, historically, there has been somewhere for those loans that do experience delinquency to go: either a voluntary sale of the home that covers the loan amount or a refinance into a subprime loan. The existing home market and the subprime refi market are the "spill overs" of the prime mortgage market. To discuss the question of "prime contaigon" without reference to existing home sales or refinance opportunities (by price and by credit standard tightening perspectives) is, indeed, utterly worthless.

by Tanta on 7/12/2007 07:19:00 PM

I thought you might be interested in this little tidbit from Moody's. According to Moody's, the average serious delinquency rate for 2006-vintage subprime securities at 10 months of seasoning is 9.2%. But some originators are more average than others:

S&P also released information on actions taken on the 612 securities it put on "watch negative" on July 10:

Regarding the July 10, 2007, CreditWatch actions affecting 612 classes of RMBS backed by first-lien subprime mortgage collateral, 498 classes were downgraded, 26 classes remain on CreditWatch, and the ratings on 74 classes were affirmed and removed from CreditWatch. Additionally, the ratings on nine other classes were affirmed and removed from CreditWatch because they involve Alternative A mortgage collateral and were not intended to be included in July 10, 2007, action. These nine classes are from the following deals: GSAA Home Equity Loan Trust 2006-5, Lehman XS Trust 2006-7, and Luminent Mortgage Trust 2005-1, and will be addressed when Standard & Poor's reviews transactions backed by Alternative A mortgage collateral.

The ratings on 26 classes remain on CreditWatch because the issuer has appealed the decision based on the presence of mortgage insurance in those transactions. We are currently reviewing this appeal. In addition, the ratings on five other classes remain on CreditWatch because they are backed by closed-end second-lien mortgage collateral and will be addressed when Standard & Poor's reviews transactions backed by closed-end second-lien mortgage collateral.

Regarding the 70 classes placed on CreditWatch before July 10, 2007, 64 were downgraded and six remain on CreditWatch. Three classes remain on CreditWatch because the issuer is appealing the decision based on the presence of mortgage insurance and we are reviewing this appeal. Three classes remain on CreditWatch because they were placed on CreditWatch before July 10, 2007, and involve either closed-end second-lien or Alternative A mortgage collateral. They will be addressed when Standard & Poor's reviews transactions backed by closed-end second-lien and Alternative A mortgage collateral.

Ooops. We didn't notice the mortgage insurance coverage? We can't tell the difference between subprime and Alt-A? Some second liens snuck in when we weren't looking? It has not been a stellar week for S&P.

Of the 612 classes placed on CreditWatch on July 10, 2007, the 498 downgraded classes total approximately $5.69 billion in rated securities, which represents 1.01% of the $565.3 billion in U.S. RMBS first-lien subprime mortgage collateral rated by Standard & Poor's between the fourth quarter of 2005 and the fourth quarter of 2006. The 64 downgraded classes that were placed on CreditWatch before July 10, 2007, total approximately $700.9 million, which represents 0.12% in RMBS first-lien subprime mortgage collateral rated between the fourth quarter of 2005 and the fourth quarter of 2006. The combined impact of these 562 downgrades total approximately $6.39 billion in rated securities, or 1.13% of all RMBS first-lien subprime mortgage
collateral rated by Standard & Poor's between the fourth quarter of 2005 and the fourth quarter of 2006. The ratings associated with the downgraded classes, as a percentage of the total $6.39 billion in downgraded securities, are as follows:

Rating Percent
-- AA 0.07%
-- AA- 0.22%
-- A+ 1.66%
-- A 4.61%
-- A- 6.79%
-- BBB+ 14.01%
-- BBB 17.96%
-- BBB- 24.49%
-- BB+ 16.58%
-- BB 11.24%
-- BB- 1.06%
-- B 1.31%

And finally, Fitch is getting into the game:

Fitch Ratings-New York-12 July 2007: Following its monthly surveillance review, Fitch Ratings identified 170 U.S. subprime transactions among its $428 billion rated universe of subprime transactions as 'Under Analysis', indicating that Fitch will be issuing a rating action over the next several weeks. The total amount of bonds rated in the BBB category and below, which are the ones most likely to face rating actions, is $7.1 billion, representing 1.7% of Fitch's rated subprime portfolio.