Moody's wraps up Alt-A review, ups loss estimates

NEW YORK Dec 4 (Reuters) - Moody's Investors Service concluded its review of $11.7 billion of residential mortgage-backed securities supported by Alt-A loans from 2005 and 2006 by slashing $5.4 billion in ratings and warning it may cut the balance of deals left under review.

Moody's said its 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 securities affected, 908 securities totaling $4.3 billion were downgraded while 24 of those same securities were left under review for a further cut. An additional 339, totaling $5.9 billion, were also placed on review for downgrade, it said.

Of the 222 securities issued in 2005, totaling $1.5 billion, 196 were downgraded totaling $1.1 billion while five of those securities were kept under review for downgrade. An additional 26 securities, totaling $367 million, were also placed on review.

Moody's said the methodology used to update its loss estimates for the reviewed transactions was to separately project ultimate losses for the delinquent and non-delinquent portions of the loan pools.

Moody's lifetime loss estimates on the pools included in the review increased by as much as 270 percent over initial expectations, with an average increase of 110 percent.

The rating actions were based on the resulting updated pool loss expectations when compared to credit enhancement in the deals in the form of available subordination, overcollateralization and excess spread. (Reporting by Nancy Leinfuss; Editing by James Dalgleish)