Italy mortgage deal may hit RMBS ratings -Moody's

MILAN, Aug 20 (Reuters) - Ratings assigned to Italian securitisations of home mortgages may suffer if banks give borrowers a chance to renegotiate their loans based on an accord with the government, ratings agency Moody's said on Wednesday.

Under the terms of an agreement signed by the association of Italian banks and the Economy Ministry, borrowers can ask their banks to turn their floating-rate mortgages into fixed-rate ones. The agreement also lowers payments to their 2006 levels and can extend the time over which the mortgage can be paid.

Moody's said in a report borrowers with low-to-medium income levels had found it increasingly difficult to meet their floating-rate mortgage payments due to Italy's low growth rate, the rise in the Euribor rate and higher food, petrol and basic goods prices.

However, the agreement aimed at helping borrowers could hurt the ratings of Italian residential mortgage-backed securities (RMBS).

"The participation ... in the scheme could potentially have a negative impact on the deal's ratings and trigger a full review of the deal by Moody's," the agency said in the report.

Moody's added it would assess the impact on a case-by-case basis.

As for new RMBS deals, Moody's said it would take into account whether or not the originator or the special purpose vehicle (SPV) which buys a mortgage portfolio from a bank in a securitisation deal takes part in the scheme and the share of loans that may be impacted.

In June, Standard & Poor's said it could place existing Italian home-mortgage securitisations on CreditWatch with negative implications if the renegotiation scheme were applied.

Italian banks and SPVs need to state whether they intend to subscribe to the new rules by Aug. 29. Borrowers will then have three months to ask to renegotiate their mortgages.

Moody's analyst Pier Paolo Vaschetti told Reuters over the phone that if a bank decided to adhere to the agreement but the SPV did not, the bank would cover the difference between payments originally owed by borrowers and the renegotiated ones.

It is estimated that borrowers representing between 5 and 10 percent of the stock of variable-rate mortgages granted by Italian banks will ask for the renegotiation. (Reporting by Valentina Za; additional reporting by Irene Chiappisi; Editing by Paul Bolding)