Fitch Affirms $84MM & Downgrades $62.6MM of SFA ABS III, Ltd.

NEW YORK -- Fitch affirms one class of notes and downgrades two classes of notes issued by SFA ABS III, Ltd., (SFA III). The following rating actions are effective immediately:

--$83,982,310 class A notes affirmed at 'AAA';

--$50,000,000 class B notes downgraded to 'CCC+' from 'A-' and assign a distressed recovery (DR) rating of 'DR2'; removed from Rating Watch Negative;

--$12,579,150 class C notes downgraded to 'C/DR6' from 'B/DR1'; removed from Rating Watch Negative.

SFA ABS III is a collateralized debt obligation (CDO) which closed on June 25, 2002 and is managed by Structured Finance Advisors. SFA III is composed of 75.5% RMBS, 14% ABS, 9.5% CDO and 1% CMBS. On July 12, 2007, the class B and class C notes were placed on rating watch negative due to the negative migration of subprime RMBS assets.

Since the class B and C notes were placed on rating watch negative on July 12, 2007, 9.6% of the total portfolio has experienced negative credit migration and approximately 10.3% are on Rating Watch Negative (RWN). In addition, in Fitch's opinion, 30.1% of the assets in the portfolio are below investment grade quality, with approximately 21.6% 'CCC' or lower quality after taking into consideration the notching of assets on rating watch negative. Of the exposure to subprime RMBS in SFA III, 20.3% consists of the 2005 vintage, which are experiencing higher delinquencies and defaults. As of the most recent trustee report on July 31, 2007, the deal is failing the weighted average spread (WAS) test, weighted average coupon (WAC) test, the Fitch weighted average rating factor (WARF) test, and the class C overcollateralization (OC) test. In addition, Fitch conducted cash flow modeling for various default timing, interest rate scenarios, and prepayment assumptions to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities.

Fitch believes that this subprime exposure, along with credit deterioration in the portfolio has increased the risk profile of the class B and C notes. This rating analysis also incorporated Fitch's revised methodology for rating structured finance CDOs. For more information, see 'Global Criteria Change for U.S. Structured Finance CDOs Reflects Heightened Subprime Risks,' dated Aug. 15, 2007 and available on the Derivative Fitch web site at www.derivativefitch.com.

The ratings on the class A and class B notes address the timely payment of interest and ultimate repayment of principal. The rating on the class C notes addresses the ultimate payment of interest and ultimate repayment of principal.

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.derivativefitch.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. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or successors thereto.