Alt-A Tremors

The warning came from Moody’s Investors Service on 66 tranches from 33 residential mortgage-backed securities transactions issued in 2005 and 2006 and valued at around $318 million. The issuances, which are currently rated at Baa or lower, are backed by both fixed-rate and adjustable-rate Alt-A mortgages.

The New York-based agency said the securities were placed under “review for possible downgrade based upon higher than anticipated loan delinquency rates and higher than anticipated expected pool losses, relative to the current level of credit enhancement.”

During the next two months, Moody’s said it will assess the impact of delinquency on the affected transactions and determine whether to lower the ratings.

“While these deals have not experienced significant actual pool losses to date, credit enhancement – provided by subordination, overcollateralization, and excess spread — may be low compared to the amount of loans in foreclosure and held as ‘real estate owned’,” Moody’s Managing Director and Chief Credit Officer Nicolas S. Weill wrote in the warning.

Because delinquency is worse that Moody’s originally projected, the affected tranches have inadequate protection, the announcement said.

“These loans were originated in an environment of aggressive underwriting, which combined with prolonged home price pressure has caused significant loan performance deterioration and is the primary factor in these reviews,” Moody’s said.

Among the affected securities were RMBS issued by Bear Stearns Alt-A Trust, IndyMac INDX Mortgage Loan Trust, Nomura Asset Acceptance Corp., Lehman XS Trust, GSC Capital Corp. Mortgage Trust, BCAP LLC Trust, Impac Secured Assets Corp., Countrywide, CSAB Mortgage-Backed Trust and Morgan Stanley Mortgage Loan Trust.

But there was some good news too.

Moody’s issued a separate announcement indicating 171 tranches from 55 prime jumbo transactions were upgraded. Those deals, issued from 2003 to 2005, represent about $752 million in securitizations.

Despite a weak real estate market, Moody’s said these seasoned vintages have performed strongly — with very low losses to date and high prepayment rates.

However, the agency warned that once some of the interest-only and option-ARMs portion of these pools begin amortizing, potentially causing payment shock to the borrowers, the risk may increase.

Included in the upgrades were jumbo transactions issued by ABN AMRO, Banc of America Mortgage, Bears Stearns, Chase Mortgage Finance Trust, Chevy Chase Funding, CHL Mortgage, Citicorp Mtg Sec Inc., CWMBS, First Horizon, GMACM, GSR Mortgage, MASTR Asset Securitization Trust, Merrill Lynch Mortgage Investors, Morgan, Mortgage Pass-Through MLMI, WaMu Mortgage and Wells Fargo Mortgage.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: mtgsam@aol.com