Just when the worries about AIG have receded from the fore, the longer-standing insurance bugaboos, MBIA and Ambac, may return to center stage. From the Financial Times:
Moody’s Investors Service has increased its projections for losses on residential mortgage-backed securities, a move that could result in “multi-notch” credit rating downgrades for bond insurers such as Ambac and MBIA which have exposure to these securities.
In its latest update on losses expected on mortgages made in 2006, Moody’s said it had increased its projections for cumulative losses to an average of 22 per cent. The losses are expected to increase in every quarter, averaging 17 per cent for the first quarter of 2006 and 26 per cent for the fourth quarter of that year….
“Moody’s updated estimated of 2006 subprime losses represents a significant increase above the level previously projected, and now exceeds the average stress case level that has been used in Moody’s assessments of financial guaranty insurers,” the ratings agency said in a statement.
For securities backed by mortgages made in 2007, loss assumptions are “roughly one-third more severe than for 2006”