Rating Firms Changing Criteria, More Downgrades Ahead?

Two rating agencies, separately, plan to change their criteria that affect residential mortgage-backed securities, paving the way for possible further downgrades. Moody's Investors Service said that in upcoming weeks it will update certain assumptions behind its loss projections for major U.S RMBS sectors. "We expect these revisions to have a significant impact on alternative-A credit, option adjustable-rate mortgages and some jumbo pools backing securitizations from 2005-2007, with the most pronounced changes expected for the 2005 pools," Moody's said. Separately, Standard & Poor's has made what it characterized as "big changes" in its rating criteria for collateralized debt obligation and U.S. RMBS that include a calibration standard for its top AAA-rated securities based on the experience during the Great Depression. "Overall, the effect should be to make it more difficult for securities in the sectors that have displayed poor credit performance during the current financial crisis to receive high ratings," said Mark Adelson, chief credit officer for S&P.