Moody's Investors Service has announced the downgrading of $33.4 billion of securities issued in 2006 and backed by subprime first-lien mortgages, representing 7.8% of the original dollar volume of such securities rated by Moody's.Of the downgraded securities, $3.8 billion remain on review for further downgrade. In addition, another $23.8 billion of first-lien residential mortgage-backed securities were placed on review for downgrade. Moody's also affirmed the ratings on $258.6 billion of Aaa-rated securities and $21.3 billion of Aa-rated securities. "Today's rating actions incorporate Moody's long-range views regarding the performance of the deals in question," the rating agency said. "As a result, Moody's expects less future rating volatility for 2006 first-lien RMBS as long as home price depreciation remains less than 10% from peak to trough and the current economic environment remains stable." Among the factors underlying the Moody's analysis are the assumption that the severity of loss associated with loans that are now seriously delinquent will be 40%-50% on average, and that (based on a recent survey of subprime loan servicers) significant loan modifications that might mitigate future losses are unlikely in the near term.

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