Tanta at Calculated Risk reported on Fitch’s downgradesof two mortgage trusts. The amount at issue isn’t large. For each of the two First Horizon Home Loan Mortgage Trust issues (series 2006 AA-3 and Series 2006-F-2), Fitch downgraded the lowest two tranches (the BB tranche became B+, the B tranche was downgraded to CCC and and assigned “distressed recovery” ratings) and put the BBB tranche on “ratings watch negative.” However, of securities with roughly $554 million in outstandings, the downgraded tranches represented only $10.8 million. However, as far as I could tell, there was no disclosure as to the value of the tranches placed on ratings watch.
This appears to be the first time since the subprime market started looking wobbly in February that a ratings agency has downgraded an Alt-A. Many observers have commented that the difference between credit quality between subprimes and Alt-As has been exaggerated, and the woes we were seeing among subprimes would soon become visible among Alt-As. But it nevertheless seems curious that Fitch is going after an Al-A deal when S&P and Moody’s have take aim at subprimes (admittedly in a very modest way) first.
Tanta ascertained why these deals are going pear-shaped. From the prospectus of one of the deals (the language applies to both):
Substantially all the mortgage loans were underwritten pursuant to the seller’s “Super Expanded Underwriting Guidelines,” which guidelines generally allow for FICO scores, loan-to-value ratios and debt-to-income ratios that are less restrictive than the seller’s standard full/alternative documentation loan programs.
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The AAA’s have been falling quite a bit too. They are also far less quaility than their label.