In the wake of the Moody's Investors Service announcement that it would increase overcollateralization levels for subordinated home equity and subprime MBS transactions containing a certain percentage of manufactured housing loans, Lehman Brothers researchers quantified that risk last week. Concentrations of such exposure in recent home equity deals, however, are trending downward, Lehman analysts report.

More recent, 2004 vintages have faired better with liquidation rates 2%-to-3% lower than previous vintages. Newly issued transactions rated by Moody's would see boosted overcollateralization requirements, based on the percentage of MH loans in deals. The rating agency change will likely have a significant effect on the new-issue home-equity ABS market, but seasoned sectors may be more susceptible to scrutiny and downgrades. "Seasoned subordinates should begin to tier, based in part, on their exposure to MH loans," according to the report.

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