TEXT-Fitch cuts Hallmark Trust Series 2008-1; outlook negative

(The following statement was released by the rating agency)

Aug 01 - Fitch Ratings has downgraded Hallmark Trust Series 2008-1's senior beneficial interests (senior BIs). The transaction is a securitisation of residential mortgage loans, mainly backed by investment properties. The rating actions are as listed below.

JPY10.91bn* Class A senior BIs downgraded to 'AAsf' from 'AAAsf'; Outlook Negative

JPY0.73bn* Class B senior BIs downgraded to 'BBBsf' from 'Asf'; Outlook Negative

*as of 31 July 2012

The downgrades reflect the weak asset performance observed to date, which Fitch expects will continue for the foreseeable future.

Defaults have shown an increasing trend over the last six months, after stabilising somewhat at the time of the last rating action in October 2011. Given the rising trend of loans delinquent by more than two months, defaults may continue at a similar pace in the near-term. In addition, recoveries have to date been lower than Fitch's initial expectation, albeit on a limited number of defaulted loans.

Fitch believes that structural features such as sequential payment and excess spread may not fully mitigate further deterioration in the pool performance. As a result, the agency does not rule out further downgrades, which are reflected in the Negative Outlook.