Assured Guaranty (AGO)
proposed raising the cap of loan modifications on a mortgage trust issued in 2007 from 5% to 25% of the original pool balance.
Assured, which guarantees the payments on senior notes in the deal consisting of option adjustable-rate mortgages, recently asked Moody's Investors Service
if raising the modification limit would result in a downgrade.
Analysts said Monday the move would not impact the ratings.
"Moody's bases its view of no rating impact primarily on its opinion that judicious use of loan modifications can decrease the expected loss in this transaction, and the current performance triggers in the transaction are already permanently breached and therefore more loan modifications will not change the current payment priorities," the ratings agency said.
Mortgage servicers modified between 10% and 15% of all private-label loans originated between 2005 and 2007, according to Barclays Capital
More than 25% of these loans were subprime and 10% considered option ARMs. While BarCap analysts expect more current modifications to perform better than earlier ones, they anticipate a redefault rate between 50% to 60% on subprime mods.
Moody's conducted a stress test of the Assured trust and found a disturbance in the cash flow could limit the trusts ability to meet its obligation to investors. The agency said while such a scenario could alter the timing of the cash flow to bond holders, it was unlikely to increase the expected loss on the bonds.
Write to Jon Prior
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