The information below is consistent with the large bank risk profile for jumbo mortgage lending in most states. As an example the standard down payment has moved to 30% from 20-25% just this summer in a lot of markets. This also is related to the Strategic Default problem. Most jumbo mortgage holders are on-time and won't default but the economics of the business change when defaults move from historic 1% levels to3-5%.
Moody's Investors Service has revised its loss projections for US prime jumbo residential mortgage backed securities (RMBS) issued between 2005 and 2008. On average, Moody's is now projecting cumulative losses of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations, reported as a percentage of original balance. As a result of the revision, Moody's has now placed 4474 tranches of jumbo RMBS with an original balance of $234 billion and current outstanding balance of $143 billion, on review for possible downgrade.
Moody's is also aggressively hiking delinquent loan estimates in the near term.
To estimate losses, Moody's first projected delinquencies through the second half of 2010. Moody's estimated that the proportion of contractually current or 30-day delinquent loans today that will become seriously delinquent by the second half of 2010 will be 3.7%, 7.0%, 8.4%, and 9.4% for the 2005, 2006, 2007 and 2008 vintages, respectively.
So much for no taxpayer losses on GSE exposure.
Full Moody's text:
New York, December 17, 2009 -- Moody's Investors Service has revised its loss projections for US prime jumbo residential mortgage backed securities (RMBS) issued between 2005 and 2008. On average, Moody's is now projecting cumulative losses of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations, reported as a percentage of original balance. As a result of the revision, Moody's has now placed 4474 tranches of jumbo RMBS with an original balance of $234 billion and current outstanding balance of $143 billion, on review for possible downgrade.
Moody's has already taken widespread rating actions on deals backed by jumbo collateral from the 2005-2008 vintages from March through July of this year. The updated loss projections will have the greatest impact on senior securities issued in 2005.
On October 29th, Moody's announced that it would update certain assumptions underlying loss projections for each of the major RMBS sectors. The rapidly deteriorating performance of jumbo pools in conjunction with macroeconomic conditions that remain under duress prompted today's announcement. Over the past nine months serious delinquencies (loans 60 or more days delinquent, including loans in foreclosure and homes that are held for sale) on jumbo mortgage pools backing 2005 to 2008 securitizations have increased markedly. Since March, serious delinquencies for the 2005, 2006, 2007 and 2008 vintages have increased to 3.2% from 2.1%, 6.0% from 3.8%, 7.6% from 4.8% and 7.8% from 4.6% respectively (reported as a percentage of original pool balance).
Even though the Case-Shiller index in recent months has reported very modest home price gains, Moody's believes the overhang of impending foreclosures will impact home prices negatively in the coming months. Moody's Economy.com (MEDC) expects home prices to decline an additional 9% to reach a peak-to-trough decline of approximately 37%. Adding to borrowers' financial pressure, unemployment is now projected to peak at around 10.6% from previous projections of 9.8% from the first quarter of this year. Both measures are expected to reach their peaks sometime in the second half of 2010, after which recovery is expected to be slow.
from Moody's and Zerohedge.
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