Moody’s Investors Service is placing on review for possible downgrade five classes of subprime triple-A rated RMBS tranches collateralized by failed mortgage lender, IndyMac. A triple-A rating is deemed the most isolated from risk. In the capital structure of securitizations, downgrades of such a prime rating were unthinkable only two years ago. When the credit crisis began to unfold, the rating agencies often came out in support of the quality of triple-A ratings. Now, however, as the agencies continue to tighten criteria, cracks are beginning to appear in prime investment grade tranches. The announcement is joined with the news that Moody’s is downgrading 27 securities from eight subprime RMBS transactions, worth $117m and mainly junk, issued by IndyMac. According to the ratings service, the rating actions are the result of an analysis of credit enhancement relative to updated collateral loss projections. The annualized loss rate from one year prior to one year from now projections are taken into account in the review. The rating agency placed the tranches on review after considering the lifetime risk of loss, which is derived by weighting the two previous factors. “Additionally, most effected transactions have, at some point, passed performance triggers and released portions of credit enhancement,” clarifies the report. Interestingly, the triple-A paper is not from recent vintages, but rather on mortgages originated in 2000 or 2001, around the same price such a property would get today, but presumably before underwriting and LTV standards softened considerably. (The two programs are: IndyMac Home Equity Mortgage Loan Asset-Backed Trust, Series 2000-C and Home Equity Mortgage Loan Asset-Backed Trust, Series 2001-C.) Write to Jacob Gaffney.
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