Lehman Brothers Holdings Inc. (fka LEHMQ)

[Picassa]

Moody’s sees more subprime pain

More sobering news out of the housing market. Moody’s said Thursday it has boosted its loss projections on pools of subprime mortgage-backed securities, based on the observation that loans made between the middle of 2005 and mid-2007 “are exhibiting worse performance with each successive quarter of origination.”

That’s not a happy trend, because the so-called loss curves are continuing to get worse at a time when they should be flattening out. The ratings agency said the 2005-2007 subprime loans - those made to borrowers with the sketchiest credit histories and lowest scores - are showing more delinquencies and fewer prepayments than those made in previous years.

Those so-called loan vintages are being closely watched on Wall Street, because of the hundreds of billions of dollars in residential mortgage-backed securities that were issued at the tail end of the housing bubble. Defaults and downgrades have left Wall Street firms with heavy losses and caused many of the biggest players in the financial sector to reduce their lending activity, which has the effect of slowing the economy. Fears of outsize mortgage losses have pummeled lenders such as WaMu (WM) and Wachovia (WB) over the past year.

As a result of its latest review of the data, Moody’s boosted its cumulative loss projection on 2006 subprime pools to 22% from the January projection of 14%-18%. Losses will reach as high as 26% on loans made in the fourth quarter of 2006 and 29% in the first half of 2007, the firm said - while cautioning that “uncertainty around projections of further home price declines indicates that there could be volatility around our updated loss expectations.”

http://dailybriefing.blogs.fortune.cnn.com/2008/09/18/moodys-sees-more-subprime-pain/?source=yahoo_quote