Moody’s Says Early-Default Trends Persist

According to a report from Moody's Investors Service, the fallout from aggressive home loan underwriting and a prolonged housing downturn continues to contribute to poor collateral performance and early defaults among loans backing recent-vintage residential mortgage-backed securities (RMBS) and will lead to downward ratings pressure on a number of U.S. subprime and Alt-A tranches.

"We will continue to assess the delinquency, default and loss performance of these pools as they season to determine the need for any further adjustments in the ratings," says Joseph Rocco, a Moody's associate analyst and author of the report.

According to the rating agency, six-month default rates continued to rise significantly for loans backing RMBS issued in the third and fourth quarters of 2006. In addition, new data show that the deteriorating performance trend is also evident in 12-month default rates.

For example, new data show that 12-month collateral defaults for subprime RMBS issued in the second quarter of 2006 rose to 7.39% – more than three times the average of 2% for subprime RMBS issued between the first quarter of 2002 and the second quarter of 2005.

In addition, among more recent vintages, six-month collateral defaults among fourth-quarter 2006 RMBS reached 3.54% – nearly four times the average of 0.90% for subprime RMBS issued between the first quarter of 2002 and the second quarter of 2005.

To date, Moody's has downgraded or placed on review for possible downgrade 496 first-lien, mortgage-backed securities issued in 2006 (3.04% of all Moody's-rated first-lien RMBS).

The report, "Early Defaults Rise In Mortgage Securitizations: Updated Data Show Continued Deterioration," is available on the company's Web site,


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