OREANDA-NEWS. S&P Global Ratings today completed its review of 123 classes from 11 U. S. residential mortgage-backed securities (RMBS) transactions issued between 1998 and 2008. The review yielded 31 upgrades, 23 downgrades, 67 affirmations, and two withdrawals. The transactions in this review are backed by a mix of fixed - and adjustable-rate prime jumbo and/or subprime mortgage loans, which are secured primarily by first liens on one - to four-family residential properties.

With respect to insured obligations, where the bond insurer is not rated, we relied solely on the underlying collateral's credit quality and the transaction structure to derive the rating on the class. As discussed in our criteria, "The Interaction Of Bond Insurance And Credit Ratings," published Aug. 24, 2009, the rating on a bond-insured obligation will be the higher of the rating on the bond insurer and the rating of the underlying obligation, without considering the potential credit enhancement from the bond insurance.

Of the classes reviewed, class A-6 and A-7 from UCFC Loan Trust 1998-C were insured by a rated insurance provider when the deal was originated, but S&P Global Ratings has since withdrawn the rating on the insurance provider of these classes.

ANALYTICAL CONSIDERATIONSWe incorporate various considerations into our decisions to raise, lower, or affirm ratings when reviewing the indicative ratings suggested by our projected cash flows. These considerations are based on transaction-specific performance or structural characteristics (or both) and their potential effects on certain classes.

UPGRADESThe upgrades include 19 ratings that were raised three or more notches. Our projected credit support for these classes is sufficient to cover our projected losses for these rating levels. The upgrades reflect one or more of the following: Improved collateral performance/delinquency trends; and/orThe class' expected short duration. We raised our rating on class 1-A1 from Lehman Mortgage Trust 2008-6 to 'A+ (sf)' from 'BB+ (sf)'. The upgrade was due to recent favorable collateral performance trends and our expectation that the class will pay down in a short period of time. The class' expected short duration is based on its related group one sequential payment priority and amount of principal being allocated to the class every month.

DOWNGRADESThe downgrades include 13 ratings that were lowered three or more notches. Thirteen of the lowered ratings remained at an investment-grade level, while the remaining 10 downgraded classes already had speculative-grade ratings. The downgrades reflect our belief that our projected credit support for the affected classes will be insufficient to cover our projected losses for the related transactions at a higher rating. The downgrades reflect one or more of the following:Deteriorated credit performance trends;Decreased credit enhancement available to the classes; and/orTail risk. Tail RiskSome of the transactions in this review are backed by a small remaining pool of mortgage loans. We believe that pools with fewer than 100 loans remaining create an increased risk of credit instability because a liquidation and subsequent loss on one loan, or a small number of loans, at the tail end of a transaction's life may have a disproportionate impact on a given RMBS tranche's remaining credit support. We refer to this as "tail risk."

We addressed the tail risk on the classes in this review by conducting a loan-level analysis that assesses this risk, as set forth in our tail risk criteria. We lowered the ratings on five classes from Banc of America Funding 2004-3 Trust to 'B - (sf)' from 'B+ (sf)', which reflects the application of our tail risk criteria.

AFFIRMATIONSThe affirmations of ratings in the 'AAA' through 'B' rating categories reflect our opinion that our projected credit support for these classes remains relatively consistent with our prior projections and is sufficient to cover our projected losses for those rating scenarios.

For certain transactions, we considered specific performance characteristics that, in our view, could add volatility to our loss assumptions and, in turn, to the ratings suggested by our cash flow projections. When our model recommended an upgrade, we either limited the extent of our upgrade or affirmed our ratings on those classes to account for this uncertainty and promote ratings stability. In general, these classes have one or more of the following characteristics that limit any potential upgrade:Insufficient subordination;Delinquency trends;Historical interest shortfalls;Low priority in principal payments; Significant growth in observed loss severities; and/orTail risk. In addition, some of the transactions have failed their delinquency triggers, resulting in reduced--or a complete stop of--unscheduled principal payments to their subordinate classes. However, these transactions allow for unscheduled principal payments to resume to the subordinate classes if the delinquency triggers begin passing again. This would result in eroding the credit support available for the more senior classes. Therefore, we affirmed our ratings on certain classes in these transactions even though these classes may have passed at higher rating scenarios.

The ratings affirmed at 'CCC (sf)' or 'CC (sf)' reflect our belief that our projected credit support will remain insufficient to cover our 'B' expected case projected losses for these classes. Pursuant to "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012, the 'CCC (sf)' affirmations reflect our view that these classes are still vulnerable to defaulting, and the 'CC (sf)' affirmations reflect our view that these classes remain virtually certain to default.

WITHDRAWALSWe withdrew our ratings on classes A-6 and A-7 from UCFC Loan Trust 1998-C because they are insured by a bond insurer that we no longer rate. The withdrawals reflect the absence of relevant information regarding the insurer's creditworthiness needed to maintain a rating on these classes. To date, the insurer has made payments to bondholders to cover principal and/or interest losses that would otherwise have been absorbed by these classes. However, because the rating on each of these classes depends solely on whether the insurer continues to make payments when required, we do not have the relevant information to make such a determination.

ECONOMIC OUTLOOKWhen determining a U. S. RMBS collateral pool's relative credit quality, our loss expectations stem, to a certain extent, from our view of how the loans will behave under various economic conditions. S&P Global Ratings' baseline macroeconomic outlook assumptions for variables that we believe could affect residential mortgage performance are as follows:An overall unemployment rate of 4.8% in 2016;Real GDP growth of 2.0% for 2016;The inflation rate will be 2.2% in 2016; andThe 30-year fixed mortgage rate will average about 3.7% in 2016.Our outlook for RMBS is stable. Although we view overall housing fundamentals positively, we believe RMBS fundamentals still hinge on additional factors, such as the ultimate fate of modified loans, the propensity of servicers to advance on delinquent loans, and liquidation timelines.

Under our baseline economic assumptions, we expect RMBS collateral quality to improve. However, if the U. S. economy were to become stressed in line with S&P Global Ratings' downside forecast, we believe that U. S. RMBS credit quality would weaken. Our downside scenario reflects the following key assumptions:Total unemployment will tick up to 4.9% for 2016;Downward pressure causes GDP growth to fall to 1.8% in 2016;Home price momentum slows as potential buyers are not able to purchase property; andWhile the 30-year fixed mortgage rate remains a low 3.7% in 2016, limited access to credit and pressure on home prices will largely prevent consumers from capitalizing on these rates.