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Subprime RMBS Warning

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Worsening loss projections led to a warning on more than $300 billion in subprime mortgage-backed securities.

On 2005 subprime securities, Moody’s Investors Service revised projected cumulative losses to 18.7 percent, a news statement yesterday indicated. On the 2006 vintage, losses are projected at 38.4 percent, while losses are expected to reach 48.1 percent on 2007 subprime RMBS.

The revised outlook prompted Moody’s to place 5,598 subprime RMBS tranches on review for a possible downgrade. The loans in those tranches had an original aggregate balance of $584 billion. The outstanding aggregate balance on the impacted loans is $319 billion.

The ratings agency explained that delinquency on the remaining pool loans has climbed to 48 percent from 43 percent in March 2009 on the 2005 vintage. Late payments have risen to 56 percent from 51 percent on the 2006 securities, while 2007 RMBS delinquency jumped to 55 percent from 47 percent.

Despite recent signs of strength in the Case-Shiller index, Moody’s expects home prices to fall another 11 percent. Unemployment, which stands at 10.0 percent, is expected to peak at 10.5 percent in the second-half 2010 followed by a slow recovery.

But Moody’s noted that the Home Affordable Modification Program’s failure to gain traction has prompted a reduction in estimated losses from modifications to 5 percent from 15 percent.

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