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SAN FRANCISCO (MarketWatch) — Poor performance of second lien residential
mortgage-backed securities (RMBS) could impact the credit ratings of bond
insurers, Moody’s Investors Service said on Tuesday. Bond insurers have
significant exposure to second lien RMBS, mainly through guaranties on the
securities and, to a lesser extent, through exposure to collateralized debt
obligations backed by such assets, the rating agency noted. “Moody’s loss
expectations for this asset class are higher than previously anticipated, owing
to worse-than-expected performance trends,” the agency explained. “This could
have material implications for the estimated capital adequacy of financial
guarantors most exposed to this risk.” MBIA shares fell 5% to $9.36 during
afternoon trading, while Ambac Financial dropped 7% to $4.03.

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