Moody's Increases Loss Projections for Subprime RMBS
Moody's Investors Service joined Standard & Poor's late Thursday in updating loss projections for subprime RMBS, saying that it now expects lifetime losses on the 2006 subprime vintage to range from 14 to 18 percent. On January 15, S&P said it had bumped up its lifetime loss estimate for the same collateral vintage to 19 percent. "We are updating our views on the possible loan losses on the 2006 subprime vintage in response to current performance that is proving to be much worse than in prior years and is demonstrating a progressive deterioration," said Moody's Chief Credit Officer Nicolas Weill. Such losses are likely to take some time to materialize, Moody's said. Loan modifications and the unknown impact of 2008 interest rate resets, as well as a potential recession, all create what the rating agency said was "significant uncertainty" over ultimate losses. "Current losses are still low in part because the loans remain relatively unseasoned and in part because foreclosures are taking longer than in previous years for those mortgages that have already fallen behind," Weill said. Not surprisingly, Moody's warned that additional negative ratings actions are likely on 2006 subprime RMBS, and said it will look to extend its loan loss projections to 2007 originated subprime RMBS and for 2006 and 2007 Alt-A backed transactions. "We expect the performance of subprime loans backing the 2007 vintage will be more like the performance of the loans backing the third and fourth quarter vintages of 2006 than that of the loans from earlier in 2006," Weill said. Which means Moody's is expecting the 2007 vintage to really, really suck. In its report, the rating agency noted that projected losses on the 2006 Q4 vintage were as high as 35 percent. The full report is available here. For more information, visit http://www.moodys.com.