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Moody's See Decelerating Jumbo Declines Around Falling House Prices

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During a revision of Moody's Investors Service loss projections for U.S. prime jumbo residential mortgage backed securities (RMBS) issued between 2005 and 2008, the credit rating agency finds that the growth in new delinquency levels beyond the Q210 is expected to decline. On average, Moody's is now projecting cumulative losses of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations, reported as a percentage of original balance. As a result, Moody's placed 4474 tranches of jumbo RMBS with an original balance of $234 billion and current outstanding balance of $143 billion, on review for possible downgrade. Moody's estimated that the proportion of contractually current or 30-day delinquent Jumbo loans today that will become seriously delinquent by the second half of 2010 will be 3.7%, 7.0%, 8.4%, and 9.4% for the 2005, 2006, 2007 and 2008 vintages, respectively. "Even though the Case-Shiller index in recent months has reported very modest home price gains, Moody's believes the overhang of impending foreclosures will impact home prices negatively in the coming months," says the report. Moody's expects home prices to decline an additional 9% to reach a peak-to-trough decline of approximately 37%. This is in line with the results of recent research from Deutsche Bank. Growth in new delinquency levels beyond the second half of 2010 is expected to decline with improving economic and housing conditions, the agency said. To estimate delinquencies beyond 2010, Moody's decelerated the new delinquency rates by 15% for 2011, 25% for 2012, 35% for 2013 and 40% for 2014 and beyond. The deceleration rates reflect home price, unemployment and foreclosure projections beyond 2010. Write to Jacob Gaffney. The author holds no relevant investments.

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