Expect Higher Losses On Subprime Home-Equity Deals - Moody’s
May 13, 2008 Market Outlook
Moody’s Investors Service said loss expectations on securities backed by subprime
home-equity deals have gotten worse than expected and could have “material
implications” on the bond insurers’ capital adequacy.
The credit rater also said again that the industry’s two biggest players - MBIA
Inc. (MBI) and Ambac Financial Group Inc. (ABK) - could lose their AAA ratings
because of the ongoing woes.
Both companies recorded large first-quarter losses amid exposures to
structured-finance deals including RMBS. Moody’s said the companies’ incurred
losses on both its direct RMBS and collateralized-debt-obligation portfolios “are
now meaningfully higher” than Moody’s expected-case estimates, “elevating
existing concerns about capitalization levels relative to the AAA benchmark.”
Moody’s added it will soon “assess whether worsening performance in this sector
is likely to be material for exposed financial guarantors, and will update the
market as appropriate.” Bond insurers have relied on their AAA ratings to sell
insurance on new bonds.
On the subprime second-lien pools, largely made up of home-equity loans and lines
of credit, 2005 deals are seen having an average loss of 17%, surging to 42% for
2006 deals and 45% for 2007 deals. Some 2006 and 2007 deals are expected to
record losses in excess of 60%.
Subprime loans and home-equity financing have been two of the worst-performing
home-lending areas, with delinquencies and defaults arising there first as the
housing industry turned south and precipitated the ongoing credit crunch.
Bond insurers, which are on the hook for losses on the securitization deals they
have insured, have been cause for concern for months as some analysts and
investors fear the companies don’t have enough capital to cover potential losses.
MBIA and Ambac have each raised more than $1 billion in capital as they attempt
to defend their AAA ratings.
Shares of MBIA were recently at $9.27, down 58 cents, or 5.9%, while Ambac was
off 33 cents, or 7.6%, at $4.
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Tags: Ambac Financial Group, Ambac Financial Group Inc, Capital Adequacy, Collateralized Debt Obligation, Credit Crunch, Credit Rater, Delinquencies, Equity Financing, Finance Deals, Financial Group Inc, Guarantors, Home Equity Loans, Housing Industry, Mbia, Mbia Inc, Moody S Investors Service, Quarter Losses, Rmbs, Structured Finance, Subprime Loans
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