Moody’s Investors Service expects senior noteholders of residential mortgage-backed securities will see increased losses because of escalating servicing costs caused by the halt in foreclosures, and the “prolonged use of mortgage-interest cash flow to pay interest on subordinate notes rather than pay principal on senior notes.” Analysts said foreclosure and property liquidation timelines will continue to increase as some the nation’s largest mortgage lenders halt the foreclosure process altogether to review procedures. Moody’s also said the unusually slow writedowns and sustained interest cash-flow issues conversely should benefit subordinate noteholders, which is what HousingWire reported last week. The ratings agency conducted analysis of a single, subprime mortgage by extending the foreclosure process by 18 months and found the delay could boost loss severity by 10% or more due to increased costs. “On average, our increased severity assumptions on impacted loans translated into an overall increase in losses on underlying mortgage pools of two percentage points,” analysts said in the firm’s weekly credit outlook. Ally Financial‘s GMAC Mortgage (GMA) and JPMorgan Chase (JPM) have halted foreclosures in 23 states to review possible faulty affidavits. On Friday, Bank of America (BAC) announced plans to stop foreclosures in all 50 states. Fannie Mae and Freddie Mac also instructed servicers to review foreclosure processes to ensure each complies with state law. Meanwhile, a handful of attorneys general have suspended the foreclosure process in their states demanding a review of the documents. Some want lenders and servicers to certify the legitimacy of the documents by the end of this week. But, Moody’s said mortgage servicers have told analysts they “will be hard pressed to make any certifications to AGs and the government sponsored enterprises until they have completed a full loan-level review of their defaulted loan portfolio and procedures, even if they believe they acted in accordance with all applicable state laws.” Write to Jason Philyaw.