Moody's refines ratings methodology for Alt-A loans

NEW YORK, July 31 (Reuters) - Moody's Investors Service said on Tuesday it has refined its method for rating residential mortgage securitizations backed by Alt-A loans in response to rising delinquencies in pools of loans securitized in 2006.

The changes, which will go into effect on Aug. 1, address the poor performance of subprime-like loans, low and no equity loans, and low and no documentation loans which are present in certain Alt-A transactions, it said.

So-called "Alt-A" home mortgages are held by borrowers who are rated above the subprime category but below the more pristine prime borrower.

The rating agency's higher loss estimates are projected to range from an increase of 10 percent for stronger Alt-A mortgaeg loan pools to an increase of more than 100 percent for weaker pools as a result of the revisions.

Higher loss estimates for the weakest 5 percent to 10 percent of Alt-A loans are projected to be the largest contributor to the overall increase in loss estimates for Alt-A pools. Those loans typically have FICO credit scores below 640 and loan-to-values or combined loan-to-values above 80 percent, as well as loans with FICOs below 660 and LTVs or CLTVs above 90 percent, Moody's said.

"Actual performance of weaker Alt-A loans has in many cases been comparable to stronger subprime performance, signaling that underwriting standards were likely closer to subprime guidelines," said Marjan Riggi, Moody's senior credit officer, "Absent strong compensating factors, we will model these loans as subprime loans."

The risky loans are projected to account for 25 percent to 50 percent of the increase in loss estimates, it said.

The rating agency said it will continue to monitor existing Alt-A transactions and take rating actions as it deems appropriate based on each transaction's actual performance.