Fitch Affirms 1 & Downgrades 4 RMBS Classes of Merit Series 13.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 9, 2004

Fitch Ratings has taken the following rating actions on Merit Securities Corp. (Merit) manufactured housing contract, Series 13.

-- Class A3 affirmed at 'AAA';

-- Class A4 downgraded to 'AA-' from 'AAA';

-- Class M-1 downgraded to 'BBB+' from 'AA';

-- Class M-2 downgraded to 'BB+' from 'A';

-- Class B-1 downgraded to 'B+' from 'BBB';

In addition, classes A3, A4, M-1, M-2 and B-1 are removed from Rating Watch Negative.

The rating actions reflect the poor performance of the collateral pool and are a result of both the losses incurred to date and the level of losses expected in the future.

The collateral supporting Merit 13 was originated by Origen Financial (Origen), previously under the name Dynex Financial, Inc.. Origen currently services this transaction. Origen's outstanding servicing portfolio is $1.3 billion as of year-end 2003.

The manufactured housing (MH) industry is experiencing its worst downturn ever. Relaxed credit standards, overbuilding by manufacturers, and the difficulties relating to servicing this unique asset have all contributed to poor performance of MH securities. Fitch believes the industry will continue to struggle for some time. Servicers must still contend with saturated repossession inventories, and Fitch does not expect recoveries on sold repossessions to improve in the near future. In addition, given the depreciating nature of the assets, as pools have seasoned, recoveries have generally declined. For these reasons, Fitch expects recovery rates to remain at low levels for some time.

When forecasting transaction performance and assessing credit risk to the bonds, Fitch begins by determining an expected loss percentage for the remaining current pool balance. This figure is a product of default frequency and loss severity assumptions which Fitch feels are the most likely to occur. Fitch then uses stressed variations of these 'expected case' assumptions to determine loss expectations at the various rating categories. Finally, Fitch values the excess spread available to cover losses at each rating category to determine how much subordination is required for any bond to be assigned a given rating. A change in the expected case loss assumption affects loss assumptions at each rating category and consequently the amount of credit enhancement required at each rating category.

The A3 and A4 classes have a current credit enhancement (excluding a Collateral Fund) of approximately 40%, compared with an initial credit enhancement of 32%. The class M1 has current enhancement of approximately 24.5%, compared with an initial credit enhancement of 22%. The class M2 has current enhancement of approximately 14%, compared with an initial credit enhancement of 15%. The class B-1 has current enhancement of approximately 6.5%, compared with an initial credit enhancement of 11%. In addition, the pool is experiencing on average a 5% constant default rate, a 75% loss severity and has experienced 12.25% in cumulative losses.

This transaction benefits from two additional credit enhancement features. On the closing date, Merit deposited additional MH loans into a Collateral Fund with an original principal balance of $15.11 million ($7.1 million currently outstanding). The interest payments from this fund are available to cover interest payment to the senior bonds and losses on the pool. The principal payments are available to cover losses on the pool. Additionally, interest payments payable to the subordinated class B2 and B3 bonds (privately placed) will be redirected as part of principal payments to the more senior bonds in the event of insufficient funds due to losses.

Fitch affirms the 'AAA' rating for the class A3. Classes A3 and A4 are paid sequentially, with class A3 receiving all principal payments before class A4. Over the last three months, class A3 has been paying down at an average principal payment of $1.6 million per month. Based on this pay-down rate, the class A3 would be paid off within 24 months. In addition, with the growth of enhancement for class A3 each month due to de-leveraging, Fitch believes that there is sufficient enhancement to maintain the 'AAA' rating on class A3.

While credit enhancement has grown for some of the bonds, current losses to date and Fitch's future loss expectations for the pool exceed Fitch's original loss expectations, causing the rating downgrades listed above.

Further information is available on the Fitch Ratings web site at 'www.fitchratings.com'.