Moody's may downgrade 13 Spanish mortgage deals

LONDON, July 23 (Reuters) - Moody's Investors Service put about 16.9 billion euros ($26.6 billion) of Spanish residential mortgage-backed securities under review for possible downgrades after adjusting for rising default rates and slowing house price growth.

The rating agency said on Wednesday it was reviewing 68 tranches of 13 deals after updating its model.

House price inflation has been higher than income inflation in Spain in the last few years, leading to a higher proportion of borrowers' debt to income, the agency said.

"Moody's believes that many Spanish mortgage borrowers have now debt-to-income ratios above the 40 percent benchmark observed in 2005," it added.

Deals singled out for review tend to have higher loan-to-value ratios and higher-risk products and have been performing below expectations, the agency said.

"Within the universe of transactions rated by Moody's that are backed by pools with such riskier features, Moody's has flagged 13 deals."

Riskier features include borrowers who are not Spanish residents, accounting for much as 10 percent of some deals, loans to multiple borrowers, loans as part of debt consolidation and interest-only loans.

Current ratings on the different tranches of the 13 deals from issuers including BBVA (BBVA.MC) and Santander (SAN.MC) vary from triple-A to junk levels as low as Ca.

The review over the next three to six months is likely to produce mostly one-notch downgrades and some two-notch downgrades, Moody's said.

(Reporting by Jane Baird; Editing by David Cowell)