Moody’s Investors Service downgraded $7.4bn of supbrime residential mortgage-backed security (RMBS) issued by a Merrill Lynch entity at the height of the housing bubble. The credit-rating agency downgraded ratings of 135 tranches and confirmed ratings on 29 tranches of 28 RMBS deals issued by Merrill Lynch Mortgage Investors Trust in 2005 and 2006. First-lien, fixed- and adjustable-rate subprime mortgages primarily back the affected deals. The ratings actions come amid continued deterioration of subprime pool performance in conjunction with distressed house price and unemployment conditions. Moody’s recently updated its loss expectations on subprime pools issued from 2005 to 2007. Moody’s ran each individual pool through a number of stress scenarios to assess the rating implications of updated loss expectations on subprime RMBS. The scenarios include 96 different combinations within six loss levels, four timing curves and four prepayment curves. Today’s announcement marks only the latest of a round of subprime RMBS downgrades. The credit-rating agency in May downgraded ratings on $13bn of subprime RMBS as its expectation of losses on subprime pools continued to evolve. Moody’s earlier this month also downgraded ratings on $3.3bn of Credit Suisse Alt-A RMBS as part of updated loss expectations on Alt-A pools issued during the same time. Write to Diana Golobay.

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