Standard & Poor’s said today that rating performance remained decidedly negative for U.S. RMBS in 3Q09, as the sector experienced an increase in performance-related downgrades and no upgrades over the period.

The rating agency lowered a record 26,387 ratings on 3,219 U.S. RMBS transactions in the recent quarter, up 152% from 10,459 downgrades in the second quarter and more than double the previous high of 12,077 in 4Q08.

The third quarter's negative rating actions affected transactions from all of the major loan types and continued to reflect our view of the weakening credit quality of the underlying collateral.

The report also noted that the amount of real estate owned (REO), or bank-owned, inventory keeps increasing in many of these transactions, and losses have started to show up in many of the pools and are rising in others.

Transactions backed by Alt-A, subprime, and prime jumbo collateral saw the biggest increases in downgrades in the third quarter:downgrades rose to 13,701 from 5,045 in the prior quarter for Alt-A, to 7,095 from 1,502 for subprime, and to 4,710 from 2,799 for prime Jumbo.

Deals backed by various scratch-and-dent collateral types also saw what the rating agency considers to be a significant increase in downgrades, with 502 rating changes in the third quarter compared with 322 in the second.

Downgrades of bonds from the 2005, 2006, and 2007 vintages were among the ongoing rating actions. These downgrades primarily reflected increases in delinquencies, which, in turn, caused the ratings agency to raise its loss projections to levels that reduced or depleted the amount of credit enhancement we projected would be available to these transactions.

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