Fitch Affirms Enhanced Mortgage-Backed Securities Fund III, Ltd. (EMBS III).

NEW YORK -- Fitch affirms five classes of notes issued by Enhanced Mortgage-Backed Securities Fund III, Ltd. (EMBS III). These affirmations are the result of Fitch's review process. The following rating actions are effective immediately:

--$130,000,000 Class A-1 Senior Notes affirm at 'AAA';

--$14,000,000 Class A-2 Senior Subordinated Notes affirm at 'A+';

--$20,000,000 Class A-3 Subordinated Notes affirm at 'BBB+';

--$6,000,000 Class A-4 Junior Subordinated Notes affirm at 'BBB';

--$30,000,000 Preference Shares affirm at 'B-'.

EMBS III, a mortgage market value collateralized debt obligation (CDO), is collateralized by fixed, floating, and adjustable rate mortgage-backed securities (MBS), collateralized mortgage obligations (CMOs), ABS, U.S. government obligations, corporate securities, and cash/cash equivalents. Portfolio restrictions limit the exposure to these particular assets as well as the percentage of assets that fall under the 'AAA', 'AA', 'A', and 'BBB' credit levels. Other key covenants include limits on effective duration, utilization of leverage, and net asset value (NAV). Effective duration, which measures total interest rate risk, and net asset value, the current asset value as a percentage of net asset value at inception, are the two main criteria used to measure these deals.

EMBS III has exhibited stable performance to date, as shown by its current NAV 104.79%. This NAV is currently in compliance with its performance trigger of 90.5%, and represents the likelihood that the deal will be able to return the full principal balance to each class of notes when the deal matures in 2008. EMBS III is currently passing all performance and compliance tests. Babson Capital Management has a 'CAM2' CDO Asset Manager rating.

The ratings on the notes and preference shares address the likelihood of investors receiving principal and original balance, respectively, by the redemption date. In addition, the expected ratings address the likelihood that the noteholders and preference shareholders will receive timely interest and periodic distributions, respectively, through the redemption date.

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at www.fitchratings.com. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004 and also available on Fitch's 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.