The credit ratings of RMBS continued their stalwart performance during the first half of 2002, with a stunning 362 upgrades and only 15 downgrades. An overwhelming 88% of the upgrades originated from investment-grade credit classes, which experienced only three downgrades. Strong collateral performance contributed to all but one of the upgrades.

To compare 2002's first six-month rating performance with the one-year performance of prior years, its rating transition ratio matrix is annualized. To annualize, the matrix of six-month transition ratios by major rating category is squared; that is, multiplied by itself. The implicit assumption of squaring the six-month matrix is that the rating transition pattern of the first six months will continue for the remainder of the year.

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