|Thousands of classes of subprime securities were downgraded as the three major ratings agencies boosted their loss projections on subprime vintages from 1999 to 2007.Moody’s Investors Service said this month that it placed 7,942 tranches for $680 billion on review for a possible downgrade. The classes are from subprime residential mortgage-backed securities issued in 2005, 2006 and 2007. The move was the result of revised loss projections.
“Moody’s attributes the higher loss expectations to the continued deterioration in home prices, rising loss severities on liquidated loans, persistent elevated default rates, and progressively diminishing prepayment rates throughout the sector,” the New York-based ratings agency explained.
Fitch Ratings released a report indicated that average losses on subprime RMBS issued between 2000 and 2004 are expected to range between 16 percent and 22 percent of remaining pool balances. Based on original pool balances, losses are expected to range from 4 percent to 8 percent.
“While these vintages are generally performing better than the post-2004 vintages, they haven’t been immune to the macroeconomic trends of declining home prices, rising unemployment, and disruption in the mortgage markets,” Fitch Managing Director Vincent Barberio said in the statement. “In many instances, loan default rates and loss severities are rising as these shrinking pools grow more adversely selected over time.”
Standard & Poor’s Ratings Services downgraded ratings on 737 from 516 subprime transactions. S&P blamed principal write-downs during recent remittance periods.
Among factors impacting Moody’s decision to downgrade classes of the following subprime RMBS were increased delinquencies, higher loss severities, slower prepayments and mounting losses in the underlying collateral.
Moody’s also downgraded tranches from these older subprime RMBS.
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