House Price Declines Weigh on Alt-A, Jumbo RMBS Ratings: Moody's
Moody's Investors Service on Thursday said it will begin taking ratings actions in Q409 as needed to account for updated assumptions underlying US residential mortgage-backed securities (RMBS) loss projections. The loss projection revisions come as Moody's expects house prices to continue to decline to a Q310 trough. Based on recent loan loss severities, the rating agency will increase its projected lifetime loan losses for pools backing US Jumbo, Alt-A, Option ARM and subprime RMBS issued from '05 to '08. These revisions should have a significant impact on Alt-A, Option ARM and some Jumbo pools backing securitizations from '05 to '07, with most pronounced changes expected in '05 pools. "Performance has deteriorated significantly in the last six to nine months, with loss severities trending higher than Moody's previous expectations," the ratings firm said in a statement. Several economic indicators and performance metrics worsened compared with previous expectations revised in Q109. Despite recent gains in house prices, Moody's said the overhang of impending foreclosures and the continued rise in unemployment will continue to negatively impact house prices in coming months. Moody's Economy.com is projecting a total peak-to-trough decline of 38%, revised from 35%. "Although the magnitude of forecast peak-to-trough decline has only worsened by 3 percentage points, the extended timeline will have an adverse impact on mortgage pools and stressed borrowers will continue to default at high rates," Moody's said. Write to Diana Golobay.