NEW YORK May 13 Moody's Investors Service on
Tuesday said losses for residential mortgage debt are worse
than it expected and may hurt the capitalization levels of bond
insurers MBIA Inc (MBI.N) and Ambac Financial Group Inc.
In a report on U.S. subprime second-lien residential
mortgage debt, Moody's said bond insurers have "significant
exposure" to second-lien residential mortgage debt.
The rating agency has cut 819 subprime second-lien
residential mortgage securities this year, affecting $29
billion of debt. More than $17 billion of the securities remain
on review for more potential cuts.
"Moody's loss expectations for this asset class are higher
than previously anticipated, owing to worse-than-expected
performance trends," the rating agency said in a statement.
"This could have material implications for the estimated
capital adequacy of financial guarantors most exposed to this
MBIA, the world's largest bond insurer, posted a quarterly
loss of $2.4 billion on Monday as it took charges on billions
of dollars of exposure to repackaged subprime mortgage debt.
For details, see [ID:nN12329970].
Moody's noted that in recent announcements of first-quarter
earnings, MBIA and Ambac both reported material credit
impairment losses on asset-backed securities that were
structured into collateral debt obligations (CDO) and loss
reserve charges on direct residential mortgage exposures,
including second-lien securitizations.
Losses at both companies' residential mortgage debt and CDO
portfolios "are now meaningfully higher than the rating
agency's prior expected-case loss estimates, elevating existing
concerns about capitalization levels relative to the Aaa
benchmark," Moody's said in a statement.
Based on losses to date, the rating agency has increased
its loss projections on loan pools backing subprime second-lien
Bond insurers to a lesser extent have exposure to ABS CDOs,
where second-lien securities typically make up less than 5
percent of collateral.
Moody's now expects 2005 vintage subprime second-lien pools
to lose 17 percent on average, 2006 vintage pools to lose 42
percent, and 2007 pools to lose 45 percent on average.
MBIA's shares fell 5.4 percent, or 53 cents, to $9.32 on
the New York Stock Exchange. Ambac shares fell 7.6 percent, or
33 cents, to $4.00.
(Reporting by Walden Siew; Editing by Jonathan Oatis)