Fitch Affirms $93.2MM & Downgrades $14.5MM from Meritage Mortgage Corp. 2004-2

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken the following rating actions on Meritage Mortgage Corporation asset-backed certificates as follows:

Series 2004-2

--Class M-1 affirmed at 'AA+';

--Class M-2 affirmed at 'AA+';

--Class M-3 affirmed at 'AA';

--Class M-4 affirmed at 'AA-';

--Class M-5 affirmed at 'A+';

--Class M-6 affirmed at 'A', and removed from Rating Watch Negative;

--Class M-7 downgraded to 'BB+' from 'A-', and removed from Rating Watch Negative;

--Class M-8 downgraded to 'B' from 'BB+';

--Class M-9 downgraded to 'C/DR2' from 'BB';

--Class M-10 downgraded to 'C/DR3' from 'B+'.

The affirmations reflect an adequate relationship between credit enhancement (CE) and expected loss and affect approximately $93.2 million in outstanding certificates. The downgrades affect approximately $14.5 million of the outstanding certificates.

The negative rating actions reflect continued deterioration in the relationship between CE and future loss expectations. The transaction is experiencing monthly losses that exceed the available excess spread (XS). As of the September 2007 distribution, the transaction has exhausted its overcollateralization (OC) and the most subordinate bond has begun to experience writedowns due to losses. Non-performing loans (i.e. loans in 60+ delinquency, including foreclosure, bankruptcy, and REO [real estate owned]) comprise 38.15% of the pool.

The pool is seasoned 36 months and has a pool factor (current principal balance as a percentage of original balance) of 11%.

The mortgage pool consists of conventional, first and second lien, adjustable- and fixed-rate residential mortgages. The mortgage loans were originated by Meritage Mortgage Corp. The loans are serviced by Saxon Mortgage Services, Inc., rated 'RPS2+' by Fitch.

Fitch will closely monitor the relationship between XS and monthly losses for those transactions in the upcoming months. If the losses continue to exceed XS, the ratings will be reassessed. Further information regarding current delinquency, loss and credit enhancement statistics is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's Distressed Recovery (DR) ratings, introduced in April 2006 across all sectors of structured finance, are designed to estimate recoveries on a forward-looking basis while taking into account the time value of money. For more information on Distressed Recovery ratings, see the full report ('Structured Finance Distressed Recovery Ratings'), which is available on the Fitch Ratings web site at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.