Moody’s Investors Service did the inevitable today and slashed ratings on $33.4 billion of first-lien subprime RMBS — note this is first lien, not closed-end seconds. The downgrades equate to 7.8 percent of the original dollar volume of all subprime first-lien RMBS rated by the agency. More numbers, from the press statement:

Of the $33.4 billion downgraded securities, $3.8 billion remain on review for further downgrade. Moody’s also affirmed the ratings on $258.6 billion of Aaa-rated securities and $21.3 billion of Aa-rated securities, representing 74.7% and 52.0% of the original dollar volume of such securities rated in 2006, respectively. In addition, another $23.8 billion of first-lien RMBS were placed on review for downgrade, representing 5.6% of the dollar volume of subprime first-lien securities rated in 2006, including 48 Aaa-rated and 529 Aa-rated securities.

So that means that roughly 14 percent of 2006 subprime first-lien securities have either been downgraded or soon will be downgraded. Moody’s is getting closer here, but I think there is still plenty of trimming left to do on this vintage come 2008, Here’s why (again, from the press statement):

Today’s rating actions incorporate Moody’s long-range views regarding the performance of the deals in question. As a result, Moody’s expects less future rating volatility for 2006 first-lien RMBS as long as home price depreciation remains less than 10% from peak to trough and the current economic environment remains stable.

I think the 10 percent is a conservative estimate. Moody’s noted — somewhat stunningly — that it now assumes loss severity of 40 to 50 percent on serious delinquencies for subprime firsts. The agency also noted that it is not expecting to see a bump in loan modification activity in the near term, reflecting the findings of its earlier study on the subject. The study found less than 1 percent modification activity among subprime loans facing a near-term reset.