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Post by jeffolie on Jul 10, 2007 15:49:50 GMT -6
Oh, and right after the close, Moody's downgraded 399 CDOs with many going below investment grade! Here comes the forced sales! This starts tomorrow guys. market-ticker.denninger.net/
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Post by jeffolie on Jul 10, 2007 16:23:08 GMT -6
More Ratings News: Moody's Downgrades 399
New York, July 10, 2007 -- Moody's Investors Service today announced negative rating actions on 431 securities originated in 2006 and backed by subprime first lien mortgage loans. The negative rating actions affect securities with an original face value of over $5.2 billion, representing 1.2% of the dollar volume and 6.8% of the securities rated by Moody's in 2006 that were backed by subprime first lien loans.
Of the 431 rating actions taken today, Moody's downgraded 399 securities and placed an additional 32 securities on review for possible downgrade. One of the downgraded securities remains on review for possible further downgrade. The vast majority of rating actions taken today impacted securities originally rated Baa or lower. The 239 securities originally rated Baa on which action was taken represented 19% of the total number of Baa ratings issued in 2006; the 185 securities originally rated Ba on which action was taken represented 42% of the total number of Ba ratings issued in 2006; and, the 7 securities originally rated A on which action was taken represented 0.6% of the total number of A ratings issued in 2006. No action was taken on securities rated Aaa or Aa. . . .
Recent data shows that the first lien subprime mortgage loans securitized in 2006 have delinquency rates that are higher than original expectations. Those loans were originated in an environment of aggressive underwriting. This aggressive underwriting combined with prolonged, slowing home price appreciation has caused significant loan performance deterioration and is the primary factor in these rating actions. In addition, Moody's analysis shows that the transactions backed by collateral originated by Fremont Investment & Loan, Long Beach Mortgage Company, New Century Mortgage Corporation and WMC Mortgage Corp. have been performing below the average of the 2006 vintage and represent about 60% of the rating actions taken today. . . .
Moody's has noted a persistent negative trend in severe delinquencies for first lien subprime mortgage loans securitized in 2006. For example, the 90+ day delinquency rate for loans securitized in 2006 has increased from 7.9% in March 2007 to 10.8% in May 2007. However, losses have remained relatively low, with the May cumulative loss rate reaching only 0.30%.
As part of the recently completed review of all 2006 subprime RMBS, Moody's said it examined the portion of each pool that was severely delinquent -- that is, over 90 days past due, in foreclosure or held as "real estate owned" -- and assessed the amount of credit enhancement available to the rated tranches in the form of subordination and excess spread. "Early defaulting borrowers often exhibit distinct characteristics: they are more likely to be first-time home buyers, speculators, or are over-leveraged or have 80%-20% first-second lien loan combinations," said Weill. Consequently, the early defaulters may exhibit different behavior than other borrowers in the pool. Those borrowers may face other challenges in the next few months when rate and payment resets take effect, especially in the absence of effective loan modifications.
In analyzing loans that are severely delinquent, Moody's said it considered a number of scenarios based on various assumptions about the percentage of currently delinquent loans that would eventually default (the "roll rate") and the expected severity of loss given default. The roll rates used were: for over 90 days delinquent: 50%, 75% and 90%; for those loans in foreclosure and held as real estate owned: 95% and 100%. While these roll rates are higher than those that have been realized historically, Moody's believes that these loans, with their high vacancy rates and high "no contact" rates, are more likely to default than other subprime loans.
The severity rates Moody's assumed ranged from 25%-30% (in particular, for deals with strong coverage from mortgage insurance), to 40% (for most originators), to 50% for originators whose mortgage assets are revealing particularly high severe delinquency rates.
For the portion of each pool that is not severely delinquent, Moody's increased its original loss expectations for the pool by a stress factor of 20% which is consistent with the increased loss expectations that the rating agency published in its March 2007 report: "Challenging Times for the US Subprime Mortgage Market."
While we considered both the projected losses associated with the seriously delinquent loans (the "pipeline losses") as well as the projected losses associated with the remaining portion of the pool, we gave more weight to the pipeline losses.
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Post by jeffolie on Jul 10, 2007 16:51:14 GMT -6
By Alistair Barr, MarketWatch Last Update: 4:14 PM ET Jul 10, 2007
SAN FRANCISCO (MarketWatch) -- More than 350 collateralized debt obligations are exposed to possible downgrades of subprime residential mortgage-backed securities, rating agency Standard & Poor's said on Tuesday. Roughly 13.5% of all U.S. cash-flow and hybrid collateralized debt obligations (CDOs), or 218 deals, are exposed to the downgrades, S&P said. Another 135 synthetic CDOs are exposed, the agency added. CDOs are a bit like mutual funds. In recent years, these structures have bought some of the riskier parts of subprime residential mortgage-backed securities (RMBS) that other investors didn't want, helping to fuel the housing boom. Now that subprime mortgage delinquencies have jumped, some experts are concerned that CDOs could be hit hard. See full story on CDOs and the subprime shakeout. On Tuesday, S&P said it may soon downgrade $12 billion of subprime RMBS because losses in this low-end part of the home-loan market have increased and will probably get worse. See full story. When downgrades like this happen, CDOs that hold the securities being cut can also be affected. Of the 218 cash flow and hybrid CDOs exposed to S&P's possible downgrades, 168 mainly hold BBB-rated tranches of subprime RMBS, the agency said on Tuesday, while 42 invested in mainly AAA and AA rated parts. All of the 135 exposed synthetic CDOs invested in mostly BBB-rated RMBS tranches, S&P added, noting that they were set up in either 2006 or 2007. Synthetic CDOs are built with credit derivatives that are linked to a portfolio of assets, such as mortgage-backed securities. Cash flow CDOs contain asset-backed securities and the payments from these holdings flow to the CDO investors. Alistair Barr is a reporter for MarketWatch in San Francisco.
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Post by jeffolie on Jul 11, 2007 9:47:12 GMT -6
From Dow Jones: US Broker-Dealer Circulating List Of Subprime Bonds For Sale. Some excerpts:
In what one investor characterized Tuesday as a "fire sale," a broker dealer - which the investor said was John Devaney's United Capital Markets ... circulated a list of subprime mortgage bonds for sale. ... The low prices of the bonds may point to a continued broad-based cheapening of the whole subprime sector. ... The offering was for 11 different classes of bonds totalling $82 million, including $10 million in below-investment-grade subprime mortgage-backed bonds from an Ameriquest Mortgage issuer at 58 cents on the dollar.
Other below-investment-grade bonds from separate issuers were listed as sold, with final offering prices for two such bonds listed at 45 cents and 28 cents on the dollar. There was also $32 million in AAA-rated bonds listed at 92 cents on the dollar.
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Post by jeffolie on Jul 11, 2007 12:11:32 GMT -6
No Manpower
Some investors assume the ratings will lag the bonds' credit quality because there are ``thousands of deals in this space, and the manpower it takes to review each one means they can't stay on top of things,'' said Paul Colonna, a bond manager for Stamford, Connecticut-based GE Asset Management, which has $120 billion in fixed income assets under management.
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