Moody’s reviewing mortgage securities

Moody’s Investors Service is stepping up scrutiny of all prime jumbo mortgage securities issued in 2006 and 2007 as the surge in U.S. foreclosures spreads beyond subprime loans.

Moody’s is studying its rankings on the securities after late payments started increasing more quickly in recent months, the New York ratings company said Wednesday. Not all bonds are under formal reviews for downgrades, spokesman Thomas Lemmon said.

Defaults among homeowners “across the credit spectrum” have soared as home prices slump, mortgage rates rise and lenders rein in debt offerings, Moody’s said. “Serious delinquencies” for prime jumbo loans in securities rose 72% from January to June to 1.7% of balances from 1%, it said.

“In contrast, subprime delinquencies, though much higher, rose 25% over the same period, increasing from 25.2% to 31.5%,” Peter McNally, a Moody’s analyst, wrote in a related report.

Jumbo loans are those too large to be bought or guaranteed by government-chartered mortgage giants Fannie Mae and Freddie Mac, currently $417,000 and as much as $729,750 in high-cost areas. Serious delinquencies represent loans at least 60 days late or on properties in foreclosure or already seized.

Moody’s also projected losses on home equity loans and lines of credit underlying securities. Most of those bonds are insured, the report said.

Losses on home equity loans, also called second mortgages, packaged into 2007 bonds will rise to 17% on average, the report said. For 2006 bonds, losses will rise to 13%, Moody’s said.