Moody's Raises Estimate for Subprime Losses

Moody's Investors Service on Thursday raised its loss estimates for $680 billion in U.S. subprime residential mortgage-backed securities issued from 2005 to 2007 and put them on risk for possible downgrade, the latest hit to the ailing financial system. Moody's put 7,942 tranches of subprime RMBS on review for possible downgrade. It said the revised loss projection for 2006-vintage RMBS will be 28% to 32% of the original balance of the securities, up from its prior estimate of 22%. For 2005 RMBS Moody's expects losses from 12% to 14% of the original balance, and for 2007 it sees losses of 33% to 37%. The company didn't note what its prior estimates for those years were. Moody's said Thursday 42% of outstanding 2006-vintage subprime loans are at least 60 days delinquent, in foreclosure or held for sale. Without intervention, it said, nearly all of those loans will eventually default. It said an additional 22% of current nondelinquent loans would default after this year. When added to the defaults expected from existing delinquencies and those expected by year's end, Moody's expects a total default rate on existing subprime loans to reach 72% for 2006-vintage loans. —Kerry E. Grace