Moody's Investors Service issued another slew of ratings changes yesterday afternoon and earlier today, downgrading tens of billions of dollars of Alt-A and subprime residential-mortgage backed securities. The lower ratings are due to the rapidly deteriorating performance of the mortgage pools that back the securities, in conjunction with macroeconomic conditions that remain ?under duress, according to Moody's. In February, the ratings agency updated the loss expectations on Alt-A and subprime pools issued in 2005 to 2007. Of the 2005 vintage alone, Moody's rates more than 5,600 tranches of MBS and has adjusted ratings on nearly 2,000 tranches already this year with another 119 on review for possible downgrade. Moody's also now expects housing prices to continue to fall until the third quarter of 2011, analysts said in the most-recent ResiLandscape report from the firm's structured finance group. The agency previously expected housing prices to stabilize in the first quarter of next year. "Lingering weakness in the demand for homes, the expectations that job creation will remain soft this year, and the slow speed at which the mortgage industry is working through distressed mortgages," led analysts to adjust their view. Analysts see "increasing potential for a double-dip recession, which could cause a further 20% decline in home prices." The now-expired homebuyer tax credit led to some purchases that otherwise wouldn't of happened, boosting demand, but the pull-through sales distorted indicators, the effects of which are still reverberating through the market. Still, Moody's analysts don't expect a potential double-dip correction in the housing market to "hamper the broader economy's already slow pace upward," nor will it "drag the economy back into recession." Some of the larger sets of securities that recently had ratings changed include:
  • $17.7 billion of Alt-A RMBS issued by Bear Stearns in 11 transactions in 2006 and 2007, with 145 tranches downgraded, three upgraded and eight confirmed.
  • $5.5 billion of Alt-A RMBS issued by First Horizon Alternative Mortgage Securities Trust in 35 transactions in 2006, with 230 tranches downgraded, two upgraded and three confirmed
  • $5.2 billion of Alt-A RMBS issued by JPMorgan Alternative Loan Trust in 2006 and 2007, with 72 tranches downgraded, 14 upgraded and four confirmed.
  • $5.2 billion of Alt-A RMBS issued by Lehman XS Trust in 14 transactions in 2006, with 68 tranches downgraded and 18 confirmed.
  • $2.8 billion of adjustable-rate Alt-A RMBS issued by Credit Suisse First Boston in 2006 and 2007, with 57 tranches downgraded, and 3 confirmed.
  • $1.2 billion of CMBS issued by Credit Suisse First Boston Mortgage Securities, with three classes downgraded, three confirmed, and nine affirmed. Higher-than-expected losses in the mortgage pools and expectations of collateral performance led to the downgrades.
Write to Jason Philyaw.