Moody's may downgrade A$83 billion of Australian RMBS

By Cecile Lefort

SYDNEY (Reuters) - Moody's Investors Service may downgrade A$83 billion ($75.5 billion) worth of Australian mortgage-backed debt, in the latest spillover from the U.S. subprime crisis.

Moody's said on Monday it had taken the action after placing U.S. bond insurer PMI Mortgage Insurance Ltd on watch for a possible downgrade following rising loan losses in the United States.

Since PMI has an Australian operation that guarantees residential mortgage-backed securities (RMBS), some 325 tranches from 144 Australian issues were automatically put on watch.

While the action was not seen as an indicator of rising risk in the Australian RMBS market, which has never seen a default, it could scare away already skittish investors.

"It's not good news for new RMBS issues because investors are already suspicious of structured finance ratings including subordinated insured tranches," said David Goode, portfolio manager at Challenger Financial Services Group.

"It's not good for overall RMBS market sentiment and liquidity," he said.

Australia has the world's fourth largest RMBS market, with total outstanding issues of A$173 billion.

Moody's said the review would take up to three months.