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Downgrade Warning On Older Jumbo RMBS

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Mortgage Daily

                                                 April 16, 2010

Less than a week after more than $70 billion in jumbo residential mortgage-backed securities were downgraded, warnings were issued on another $43 billion in securities. The latest round of actions impacts older vintages.

In a press release Thursday, Moody’s Investors Service announced that it placed prime jumbo RMBS on review for a possible ratings downgrade.

Impacted securities were issued prior to 2005. The actions affect 3,000 tranches for $43.4 billion.

Moody’s cited a continued deterioration in performance on pre-2005 jumbo issuances.

Annual delinquency rates, measured as total new delinquencies as a percentage of the contractual pool balance on Jan. 1, averaged around 2 percent during the past 12 months on loans originated between 2001 and 2004. In the prior 12-month period, the rate was just 0.75 percent.

“Although pools backing pre-2005 (seasoned) prime jumbo RMBS have paid off substantially, with pool factors averaging below 30%, the remaining loans in these pools have been under pressure as a result of the sharp decline in home values,” the New York-based ratings agency explained in the statement. “Over the coming months, we expect continued negative performance on seasoned prime jumbo pools, as the overhang of impending foreclosures will impact home prices negatively.”

Moody’s said negative equity is the best indicator of future mortgage defaults, and pre-2005 vintage jumbo loans with a loan-to-value of 65 percent at closing could be facing a no-equity or negative-equity scenario now.

Moody’s recently downgraded more than $70 billion in tranches from jumbo RMBS issued between 2005 and 2008 because of “rapidly deteriorating performance of jumbo pools in conjunction with macroeconomic conditions that remain under duress.”

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