NEW YORK, Aug 16 (Reuters) - Moody's Investors Service on Thursday cut its ratings on more than $19.4 billion of securities backed by subprime mortgage debt and Fitch Ratings said it may cut $12.1 billion.
Moody's said it cut 691 deals backed by closed-end second lien mortgages originated in 2006. The loans secured by a second priority mortgage lien on residential real estate, and are advanced in a specified amount at the closing of the loan.
"The actions reflect the extremely poor performance of closed-end second lien subprime mortgage loans securitized in 2006," Moody's said in a statement. "These loans are defaulting at a rate materially higher than original expectations."
"Aggressive underwriting combined with prolonged, slowing home price appreciation has caused significant loan performance deterioration and is the primary factor in the negative rating actions," Moody's added.
Fitch said on Thursday it may cut the ratings on $12.1 billion of securities, citing high delinquencies and a rapid deterioration in underlying credit support for the securities.
The rating action involves all classes within 58 RMBS subprime transactions backed by pools of closed-end second-liens. Thirty-five transactions were originated in 2005, 22 were originated in 2006, and one this year, it said.
While performance for individual transactions varies, Fitch said, the closed-end second-lien sector as a whole has significantly underperformed from original expectations.
"Ongoing pressure from the combination of a declining housing market, interest rate resets and weak loan underwriting standards, has led to high delinquencies, rising losses and a rapid deterioration of credit enhancement for these securities," the rating agency said.
Fitch said the latest transactions comprise the entirety of Fitch's rated portfolio of closed-end second-lien RMBS from that series of securities. For details, see [ID:nN16335404].