Recent subprime ratings actions
By PATRICK CROWLEY
4/24/2003

EMC Mortgage Corp., a wholly owned subsidiary of The Bear Stearns Cos. Inc., has received Moody's Investors Service highest rating - SQ1 - as a primary servicer of residential subprime mortgage loans. The action reflects EMC's strong collection and loss mitigation results and above average foreclosure timeline management. Moody's said it also considers EMC a strong corporate entity due to its profitability and access to capital from Bear Stearns, which is rated A2 for senior unsecured debt. The SQ ratings represent a loan servicer's ability to prevent or mitigate pool losses across changing markets. The rating scale ranges from SQ1, strong, to SQ5, weak. EMC grew its loan portfolio over the last five years, from 35,000 loans serviced in June 1998 to 170,000 loans in February of this year. The increases can be attributed to a pair of major acquisitions: 84,000 loans purchased in the first quarter of 2000 from United Companies; and 58,000 loans acquired from Superior Bank in the second quarter of 2002.

Ratings of 'Aaa' were assigned by Moody's to the $1.2 billion senior investor certificates Series 2003-02 issued by New Century Home Equity Loan Trust reflecting the quality of the collateral, subordination, overcollateralization and excess spread. Approximately 75% are adjustable-rate mortgage loans with initial fixed-rate interest terms ranging from 2 to 3 years, with approximately 25% fixed-rated mortgage loans. All loans were first liens originated by New Century Mortgage Corp., Irvine, Calif., and none carry mortgage insurance. The weighted-average loan-to-value (LTV) is 78%. Single-family homes and planned unit developments make up 86% of the loans, and 94% of the units are owner occupied. The deal structure includes initial over-collateralization of approximately 2.10% of the Trust, or $24,650,209.

Despite the weakening economy mortgage delinquency rates dropped in the 4th quarter of last year and the subprime mortgage sector performed well, according to a new Moody's Home Equity Index Composite. The 4th quarter delinquency rate came in at 8.79%, down from 9.04 percent in the third quarter of 2002. The charge-off rate of 1.28% was slightly higher than the 1.22% of the third quarter, but the rate is still relatively low compared to historical performance, according to the report.

"Although increased issuance is the major factor behind the improved performance of the index, the stable performance of the underlying pools also plays a part, and the weak economy still hasn't had an impact yet," said Moody's analyst Julia Tung, one of the authors of the report. Home equity issuance volume jumped in the past two years, rising 43% in 2002 and 60% in 2001. The index included 83.6% of subprime mortgages and 12.4% traditional home equity loans at the end of 2002, with LTV and home improvement loans comprising the remaining 4% of the loans.

Moody's analyst Henry Engelken, who co-authored the report, said subprime mortgage loans "are doing well for several reasons, including the continued strong housing market and low interest rates." Engelken also cited high prepayment rates as another factor contributing to the sector's strength "since prepaid loans cannot default." The report did caution that a continued weak economy, lower housing prices and rising interest rates could negatively affect performance of subprime mortgage pools. And Engelken did find some signs of weakness in traditional home equity loans, including lines of credit and closed-end second liens.

The Class A certificates in CDC Mortgage Capital Trust's $650 million 2003-HE1 securitization were rated 'Aaa' by Moody's. The securities are backed by fixed and adjustable rate subprime mortgage loans CDC acquired from eight separate originators. In addition Moody's assigned ratings of 'Aa1', 'A2', 'A3', 'Baa2' and 'Baa3' to the Class M-1, Class M-2, Class M-3, Class B-1 and Class B-2 certificates respectively. The ratings of the Class A-1 is based primarily on a certificate insurance policy from Financial Security Assurance Inc., which is partially protected from losses by excess spread, overcollateralization and subordination. The ratings of the Class A-2, Class M and Class B certificates is based of the quality of the loans, excess spread, over-collateralization and subordination. Approximately 69.75% of the loan pool are adjustable-rate loans and 30.25% are fixed-rate loans. The weight-average LTV is 81%.

Moody's assigned its highest rating of SQ1 to Chase Manhattan Mortgage Corp. as a primary service of subprime mortgage loans. Chase, an indirect subsidiary of JP Morgan Chase Bank, received the rating based on its strong collection abilities and effectiveness in controlling losses on subprime portfolios. The company's prime mortgage portfolio grew from $203 billion at the end of 1999 to $367 billion as of July 2002. During the same period, the subprime portfolio decreased from $20.2 billion to $15.7 billion.

The servicer ratings of Washington Mutual have been upgraded by Fitch Ratings. Residential primary servicer ratings went to 'RPS2' from 'RPS2-' for subprime and Alt-A product and to 'RMS2+' from 'RMS2' for master servicing. The ratings are based on Washington Mutual's management, efficient portfolio management, enhanced risk management practices and other factors.

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