Moody's downgrades 272 tranches of RMBS issued by Countrywide
Moody's Investors Service continues revamping ratings on Alt-A, adjustable-rate residential mortgage-backed securities with the downgrade of 272 tranches of debt issued by Countrywide Financial. Analysts also confirmed ratings of 15 tranches from 38 transactions of option ARM loans sold by the failed lender. The combined value of the securities is $19.1 billion. Bank of America (BAC) acquired Countrywide in 2008. In October, former Countrywide CEO Angelo Mozilo agreed to pay a record $67.5 million penalty to settle Securities and Exchange Commission charges that he and two other former executives misled investors by overrating the credit strength of borrowers of their subprime mortgages. Moody's said the "rapidly deteriorating performance" of option ARM pools coupled with the macroeconomic conditions that remain "under duress" prompted the most-recent ratings changes. Earlier this year, the ratings agency also updated loss expectations on these types of loans that were issued from 2005 to 2007. Most of the lowered ratings on the Countrywide RMBS slid further down the noninvestment grade chain to Moody's single-C categories. Any rating below triple-B is considered junk. When the credit crisis first began to unfold, rating agencies often maintained the quality of triple-A ratings. But as ratings criteria tightened, subprime RMBS tranches bore the brunt. Moody's said continued high levels of unemployment and housing market weakness perpetuate uncertainty in the macroeconomic environment. And analysts continue to see "increasing potential for a double-dip recession, which could cause a further 20% decline in home prices." Last week, Ambac Financial Group said it sued a handful of trusts, including many Countrywide entities, that sold MBS, claiming the sponsors of the debt misrepresented the securities at the time of the sale. Ambac's main operating unit also is reviewing a number of loans included in RMBS it insures to see if there are "breaches of representations and warranties made by the sponsors of such securities" when they were issued. Write to Jason Philyaw.