July 29, 2008 / 10:31 PM / 12 years ago

S&P revises projected mortgage loan losses higher

NEW YORK (Reuters) - Standard & Poor’s revised higher its loss assumptions for a variety of residential mortgage-backed securities on Tuesday, amid concerns home prices may record deeper-than-expected declines and drive loan losses higher.

In early July, the rating agency affirmed its loss assumptions for U.S. RMBS 2006 vintage, based on its outlook for the housing market. It projected an additional 10 percent decline in home prices by June 2009.

Since then, however, weaker-than-expected U.S. housing and mortgage loan performance data in July led S&P to modify its default curve methodology for 2006 and first-half 2007 loans in the U.S. subprime, prime jumbo and Alt-A RMBS market.

S&P noted the rising level of foreclosures and the costs associated with them, the increased carrying costs of properties held in inventory and distressed sales for its latest revision. Declining home sales will depress prices further, it said, and boost losses more than previously assumed.

The rating agency doubled its loan loss projections for short reset Alt-A mortgage securities issued in 2006 to 12.2 percent from 6.3 percent, while revising loan losses for 2007’s first half to 15 percent from 7.5 percent.

It also lowered its loss projections for Option adjustable

rate mortgage Alt-A loans from 2006 to 11 percent from 7.4 percent, while revising them to 14.8 percent from 8.8 percent for loans made during 2007’s first half.

As a result of the modifications, S&P placed 1,614 ratings of Alt-A RMBS, issued between 2005-2007, on review for possible downgrade.

The rating agency also revised its loss projections for subprime mortgage securities higher, to 23 percent from 19 percent for 2006 vintage, while revising them to 27 percent from 23 percent on 2007 loans.

Loss projections for prime jumbo mortgage loans were revised up a touch, to 0.32 percent from 0.31 percent for 2005 loans and to 0.81 percent from 0.62 percent for the 2006 vintage. It also modified loss projections to 1.17 from 0.70 percent for loans made in the first half of 2007.

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