A rating service said yesterday that total projected losses for the bond insurance industry are now 20 percent higher than when it reviewed companies last month.
Standard & Poor's Ratings Service's findings came in an announcement that it has updated the results of its bond insurance stress test, originally published Dec. 19, to incorporate revised assumptions announced Jan. 15 by S&P's RMBS (residential mortgage backed securities) surveillance group.
The new results, S&P said, show individual company increases ranged from a low of 2 percent to a high of 36 percent. Standard & Poor's has not taken rating action on any company at this time.
Meanwhile. Moody's said it was looking at MBIA for a possible financial strength downgrade, while Fitch affirmed its "triple-A" rating for MBIA.
The increased projected losses, S&P said, did not materially impair the adjusted capital cushions of the companies that had stable outlooks.
For the other companies, the fact that their ratings either had a negative outlook or were on CreditWatch reflected uncertainty surrounding the potential for further mortgage market deterioration and the companies' ability to accurately gauge their ongoing additional capital needs, the rating firm said.
S&P added that the latest round of revised assumptions is an example of the deterioration that was contemplated.
"We do not view the extent of the deterioration as significant in the context of each company's capital position and the comprehensiveness and degree of completion of projected capitalization strengthening efforts that are underway," the firm said.
The revised assumptions announced by the RMBS surveillance group, S&P said, reflect the growing economic consensus that U.S. home price declines will be larger than previously forecasted and that the U.S. housing market slump may last far longer than previously expected.
These factors, combined with the persistence of significant growth in seriously delinquent borrowers, are leading to upward revisions in loss expectations and a greater likelihood of the realization of these expectations, the rating firm explained.
The expected losses for the 2005, 2006 and 2007 vintages of subprime collateral, S&P said, have been revised to 8.5 percent, 18.8 percent and 17.4 percent, respectively–"levels meaningfully higher" than the 5.75 percent, 15.5 percent and 17 percent levels used in its December 2007 stress test.
S&P said it continues to take a negative view of those companies with significant exposure to domestic subprime mortgages and collateralized debt obligations (CDO) with subprime RMBS collateral.
The rating firm said its view reflects the uncertainty of what the ultimate RMBS and CDO-related losses will be and whether the insurers will be successful in managing their capital positions to handle these losses.
S&P said as a result it expects to retain negative outlooks until the uncertainty surrounding subprime losses can be minimized or eliminated.
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