Ratings agency now expecting significantly higher losses than previously projected as foreclosures take their toll.
Moody’s has revised its loss projections for US subprime residential mortgage backed securities (RMBS) issued between 2005 and 2007. On average, Moody’s is now projecting cumulative losses of 18.7% for 2005 securitizations, 38.4% for 2006, and 48.1% for 2007, as a percentage of the original balance. As a result of the revision, Moody’s has now placed 5,698 tranches of subprime RMBS with an original balance of $584 billion and outstanding balance of $319 billion, on review for possible downgrade.
Moody’s last revised its loss projections in March 2009, to 13%, 30%, and 36% of original balances on 2005, 2006 and 2007 vintages, respectively.
Nearly 50% of original balances loss projections for the 2007 vintage. And Moody's consistently (still) underestimating the losses. The raters (as expected) are slow and coy about projecting anything but the most optimistic scenarios.
Should we still keep believing those who say that banks who hold real-estate instruments (and of course, also the Fed) will not see further losses?
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