Fitch Downgr BHN III, BHN IV & BACS I; Watch Neg Maintained.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 29, 2001

Fitch has downgraded its ratings on 3 Argentine residential mortgage securitizations following the downgrade in Argentina's sovereign foreign and local currency ratings to `B+', Rating Watch Negative. The transaction ratings remain on Rating Watch Negative.

Rating Actions:

BHN III Mortgage Trust

-- Series 1997-2 Class A1 and A2 Mortgage Bonds Downgraded to

`BB+' from `BBB-', Rating Watch Negative;

BHN IV Mortgage Trust

-- Series 2000-1 Class AF and AV Mortgage Bonds Downgraded to

`A-' from `A+', Rating Watch Negative;

BACS I Mortgage Trust

-- Series 2001-1 Class AF and AV Mortgage Bonds Downgraded to

`A-' from `A+', Rating Watch Negative.

The downgrades are related to an increased risk profile due to the deteriorating credit ratings of Argentina. Since the transaction ratings were assigned, Argentina's foreign currency rating has been downgraded from `BB' to `B+' and local currency rating from `BB+' to `B+'. To date, none of the senior bonds have suffered any losses. The senior bonds in all three transactions are protected by subordination levels that are structured to increase over time, as well as excess spread. However, the conditions allowing this strong performance may not continue in the long-term.

While securitization structures mitigate sovereign risks to a certain extent, no securitization is immune to negative political and economic developments. Fitch believes that the risks of currency transfer and convertibility, devaluation and government imposed borrower relief programs, have all increased. These risks were taken under consideration and factored into credit enhancement requirements when Fitch assigned the initial transaction ratings. However, the cumulative two notch sovereign foreign currency downgrade (since transaction closings) into the `B' rating category poses a significantly higher risk profile than originally anticipated.

While the BHN III, BHN IV and BACS I structures protect against currency inconvertibility, Fitch believes the probability of an inconvertibility event occurring has increased. This increased level of risk is reflected in the revised sovereign ratings. Furthermore, the expected duration of currency inconvertibility has also increased. Although the underlying mortgages and mortgage bonds are both denominated in US dollars, a potential devaluation does impact the structured. The borrowers typically earn wages in pesos and pay US dollar-denominated mortgage debt. As such default probabilities will increase in conjunction with the severity of the devaluation.

Fitch considered the potential, yet remote risk of a government sponsored borrower relief measures in assigning the BHN IV and BACS I ratings. These risks included a moratorium on foreclosures and a restructuring of mortgage loans. However, Fitch expects a prolonged recessionary period which will further strain borrowers and their payment abilities. As such Fitch believes that the Argentine government may be willing to take more severe measures, such as a temporary payment holiday, to assist borrowers in an Argentine default scenario. These measures would have a negative impact on the structure and may cause liquidity constraints.

Finally, Banco Hipotecario serves as master servicer on all three transactions. Banco Hipotecario's ratings were downgraded to `B+/B+' by Fitch earlier today. A one month master servicer reserve fund is available to cover the risk of servicer transfer. Fitch believes that the risks of servicer default and the inability to advance have increased with the current economic scenario.

The current levels of subordination (as of Jan. 31, 2001) on the individual transactions are as follows: BHN III: 30%, BHN IV: 26% and BACS I: 18%. The total amount of coverage specifically available for transfer and convertibility risk on the individual transactions are: BHN III: 3 months BHN IV: 36 months and BACS I: 18 months.