Dec. 18 (Bloomberg) -- Moody's Investors Service placed $143 billion of jumbo-mortgage bonds under review for downgrades because of higher loss projections.
Grades of senior securities issued in 2005 will be most affected by the new loan-loss projections, the New York-based ratings company said in a statement dated yesterday. It now expects losses of 3.8 percent on loans underlying 2005 prime- jumbo bonds, with estimates of 8 percent for 2006 securitizations, 10.9 percent for 2007 debt and 12.3 percent for 2008 securities.
The revisions were prompted by "the rapidly deteriorating performance of jumbo pools in conjunction with macroeconomic conditions that remain under duress," Moody's said.
Recent jumps in "serious delinquencies" among jumbo loans will be compounded by weakness in the housing market and economy, the company said. An "overhang of impending foreclosures will impact home prices negatively," with values likely to decline 9 percent more before bottoming in the second half of 2010, Moody's said. At the same time, U.S. unemployment will rise to peak at about 10.6 percent, said to the firm, which had earlier forecast the jobless rate cresting at 9.8 percent.
Moody's also said it expects the U.S. government's effort to curb foreclosures to be less effective than it previously expected because it has "failed to gain traction."
Jumbo home-loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas.
Criticism of Ratings
Ratings reductions typically boost the capital needs of bondholders such as banks and insurers and force some investors to sell debt. Moody's and Standard & Poor's, criticized by lawmakers for assigning top grades to mortgage debt proven too high by later defaults, have already cut ratings on hundreds of billions of dollars of notes in the $1.6 trillion market for so- called non-agency mortgage bonds, which lack government backing, lowering many securities multiple times.
In its last forecast in March, Moody's predicted cumulative losses, as percentage of original loan balances, of 1.7 percent for 2005 jumbo bonds, 3.6 percent for 2006 securities, 5.1 percent for 2007 securitizations and 6.2 percent for 2008 debt.
Since March, serious delinquencies among the pools, as a percentage of original balances, have risen to 3.2 percent from 2.1 percent for the 2005 bonds, 6 percent from 3.8 percent for the 2006 securities, 7.6 percent from 4.8 percent for the 2007 debt, and 7.8 percent from 4.6 percent for the 2008 group, Moody's said.
To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.
Last Updated: December 18, 2009 12:44 EST
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