S&P: Subprime Losses May Be Less Than Expected

Standard & Poor's, in a new report, predicts that subprime losses on 'AAA' rated mortgage bonds may not be as bad as some are projecting. S&P - basing its findings on subprime ABS issued from mid-year 2005 to mid-year 2007 - said the losses on the underlying loans could reach $180 billion but the writedown in the principal loan amount on these securities will be just $85 billion. Analysts at the firm note, "The difference between the projected write-downs and losses reflects the various forms of credit enhancement that support the rated securities, such as subordination, overcollateralization, and excess spread. A principal write-down on the RMBS certificates occurs when the amount of collateral losses exceeds the amount of available credit support."