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Agencies See More Pressure for Securities

NEW YORK CITY-Moody's may downgrade 7,942 tranches of subprime RMBS, while Fitch says new rent regulations could stress several large CMBS loans.

By Paul Bubny | Updated on February 26, 2009

NEW YORK CITY-Further troubles for mortgage-backed securities are forecast by two ratings agencies: Moody’s, which is raising its loss expectations on thousands of residential-backed securities issued between 2005 and 2007; and Fitch Ratings, which says proposed changes in New York State rent regulations could undermine several loans backed by CMBS.

Moody’s on Thursday put 7,942 tranches of subprime RMBS on review for possible downgrade. The securities were originally valued at a total of $680 billion, but Moody’s projects the losses for the RMBS at anywhere from 12% to 14% in the case of the ’05 bonds to 33% to 37% on those issued in ’07. In a statement, the agency cites “continued deterioration in home prices, rising loss severities on liquidated loans, persistent elevated default rates and progressively diminishing prepayment rates throughout the sector.”

Although the actions taken by Moody’s on the securities will vary, “it is likely that the vast majority of 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,” according to the agency. “Given the level of losses currently being projected, a majority of senior certificates will likely be downgraded below investment grade.”

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