Moody's Investors Service is placing $27.6 billion of subprime residential-mortgage backed securities on review based on changes in the performance of the collateral.

Considering these are subprime bonds, the natural reaction is to brace for bad news, but that isn't the case this time around. (The ratings action is not limited to subprime mortgages, but it is the vast majority of the review.)

Moody's placed 724 tranches ($25 billion) on review for upgrade, compared to only 87 tranches on review for downgrade.

It turns out that some bad subprime mortgage bets are not so bad after all.

All of the deals above are mortgage originations from 2005 to 2008. Moody's seems as pleasantly surprised as anyone with the news. In some transactions, delinquencies have declined at a faster pace than Moody's forecast. Some bonds with payment priority also paid down faster than expected — not the best outcome for investors but still more favorable than default.

"While the average level of delinquencies remains high with reported 60-plus (days) delinquencies at 42% of outstanding balance, the growth rate of new delinquencies is steadily falling," said Moody's in an announcement on the development. "The rate of new delinquencies among loans that have always been current has fallen substantially, to about 13% in April from 17% one-year prior."

Alt-A and Option ARMs originated in a similar boom-year time frame are also recording better performance.

Moody's placed $7 billion of Alt-A mortgage bonds on review for upgrade, compared to $1.6 billion on review for downgrade for the same reasons as above.

The credit ratings agency also put $3 billion of Option ARM residential mortgage-backed securities on review for upgrade, compared to $297 million on review for downgrade.

Those who have covered securitization for some time will find this news as no surprise, as economic and housing indicators improve so will the performance of mortgage collateral.

What's important to note is that bad mortgage bond bets may not be so bad as the improved performance outstripped Moody's projections.

That, and the fact that the performance of these bonds remains comparatively terrible, when compared to similar-year originated prime mortgages.