Moody’s Investors Service issued another slew of ratings changes yesterday afternoon and earlier today, downgrading tens of billions of dollars of Alt-A and subprime residential-mortgage backed securities.
The lower ratings are due to the rapidly deteriorating performance of the mortgage pools that back the securities, in conjunction with macroeconomic conditions that remain under duress, according to Moody’s. In February, the ratings agency updated the loss expectations on Alt-A and subprime pools issued in 2005 to 2007.
Of the 2005 vintage alone, Moody’s rates more than 5,600 tranches of MBS and has adjusted ratings on nearly 2,000 tranches already this year with another 119 on review for possible downgrade.
Moody’s also now expects housing prices to continue to fall until the third quarter of 2011, analysts said in the most-recent ResiLandscape report from the firm’s structured finance group. The agency previously expected housing prices to stabilize in the first quarter of next year.
“Lingering weakness in the demand for homes, the expectations that job creation will remain soft this year, and the slow speed at which the mortgage industry is working through distressed mortgages,” led analysts to adjust their view.
Analysts see “increasing potential for a double-dip recession, which could cause a further 20% decline in home prices.” The now-expired homebuyer tax credit led to some purchases that otherwise wouldn’t of happened, boosting demand, but the pull-through sales distorted indicators, the effects of which are still reverberating through the market.