Moody’s Investors Service completed its review of $11.7 billion worth of residential mortgage-backed securities supported by Alt-A loans from the fourth quarter of 2005 and all of 2006, downgrading $5.4 billion and warning of further cuts.
The review was prompted by “deteriorating mortgage performance in pools backing transactions issued during this period, resulting from aggressive underwriting combined with a tighter lending market and prolonged home price weakness that it expects will continue.”
Of the $10.2 billion in 2006 Alt-A RMBS reviewed, 908 securities totaling $4.3 billion were downgraded, with 24 of those facing further cuts. Another 339 securities totaling $5.9 billion were also placed on review for a possible downgrade.
Moody’s reviewed 222 securities issued in 2005 totaling $1.5 billion, downgrading 196, or $1.1 billion, and placing another 26 securities totaling $367 million on review.
The rating service said lifetime loss estimates on the pools included in the review rose by as much as 270 percent over initial expectations and 110 percent on average.
Alt-A loans are extended to borrowers with good to average credit scores who provide limited documentation or smaller down payments.
Earlier today, Moody’s cut ratings on 59 Bear Stearns subprime RMBS securities, citing higher than anticipated rates of delinquency, foreclosure, and REO.