Moody's Boosts Subprime MBS Loss Outlook

Moody's Investors Service is again increasing its loss expectations for U.S. subprime residential mortgage-backed securities issued between 2005 and 2007, raising them to a range of 28% to 32% of the original pool balance from 22% and placing 7,942 tranches of subprime RMBS with an original balance of $680 billion on review for possible downgrade. It said that ratings actions expected to occur as a result of this move make it likely that "mezzanine and subordinate certificates currently rated B or above would be downgraded to ratings of Caa or below, particularly for bonds issued in 2006 and 2007" while actions on senior bonds "will differ based on payment priority and protection relative to projected losses." The rating agency added however, that "given the losses currently being projected, a majority of senior certificates will likely be downgraded below investment grade" and "many are expected to be downgraded to Caa or below, particularly longer duration bonds from 2006 and 2007." Moody's said the Homeowner Affordability and Stability Plan "is expected to have a mitigating impact" on this. It added that while it already has formed a preliminary estimate of the impact of the plan and included that estimate in its numbers, that estimate could change when additional detail of the plans are released on March 4.