Moody's Cuts Credit Ratings
On About 2,000 Subprime Bonds

Moody's Investors Service slashed credit ratings on about 2,000 bonds backed by subprime home loans that were originally valued at $33.4 billion, in its largest wave of downgrades.

The New York ratings company said it doesn't expect another bigger round of cuts for such bonds unless conditions in the housing market deteriorate significantly.

The latest downgrades affected 7.8% of the original value of bonds backed by first-lien subprime mortgages that were issued during 2006 and rated by Moody's, a subsidiary of Moody's Corp. All of them are rated A and below. In July, the rating service cut its grades on about $5 billion of these types of bonds. It has also cut ratings on many bonds backed by second-lien loans, which are second mortgages taken out on homes.

Moody's yesterday placed an additional $23.8 billion in first-lien subprime bonds on review for downgrades, including 48 securities that have the top Aaa rating and 529 with the next-highest Aa rating. The rating service said these ratings aren't expected to be lowered significantly.

Nicolas Weill, Moody's chief credit officer for structured finance, said the latest actions were taken after a "complete review" of subprime-mortgage bonds that were issued in 2006, adding that there should be "a fair amount of rating stability going forward."

Moody's said there has been a steady deterioration in the performance of subprime loans that were made in 2006 as home prices have continued to decline. But it noted that as long as home prices don't fall by more than 10%, and the economy remains steady, the bulk of its subprime bond ratings should be stable. According to its data, home prices have fallen 4.5% to 5% from their peak.

The latest cuts are expected to spill over to many collateralized debt obligations, or CDOs, that bought subprime-mortgage bonds last year and repackaged them into new securities that were sold to investors world-wide.

A significant number of CDOs hold mainly subprime bonds that originally had weaker credit ratings of A and Baa. Many of these securities have been downgraded to junk, or high-yield, ratings, and some bonds have suffered principal losses because of high defaults among the underlying loans. Some CDOs are being reviewed for rating downgrades.

Moody's also confirmed its top ratings of $258.6 billion in Aaa subprime bonds and $21.3 billion in Aa bonds, which it said represented the majority of the subprime-mortgage bonds it rated in 2006.

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