Citing a "new paradigm" of subprime credit losses, Standard & Poor's last week stepped up its RMBS credit surveillance and simultaneously placed a negative CreditWatch on ratings of 18 subordinate classes from 11 RMBS deals issued in 2006 - both in the subprime and Alt-A sectors. According to S&P, the new rating methodology only affects how soon a deal is placed on rating CreditWatch negative. Previously, the rating agency would not place a deal on rating CreditWatch negative if there had not been a loss to the pool.

"What we are observing with regard to the delinquency and loss represents a new paradigm," said Ernestine Warner, head of S&P's RMBS surveillance group. "We have not seen similar performance in other vintages." S&P said CDO exposure to the 11 affected deals was "minimal," but noted during a conference call last week an initiative to keep the CDO surveillance team abreast of RMBS performance. Three S&P rated hybrid and cash CDOs have exposure to the collateral, although none of the ratings for the deals were placed on CreditWatch negative.

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