Moody's Investors Service late last week downgraded $729 million of payment option ARM securities issued by Washington Mutual, Seattle, which is now the property of JPMorgan Chase.The collateral backing the securities includes first-lien, adjustable-rate, negative amortization mortgages.

Moody's said the ratings downgrades "are a result of the rapidly deteriorating performance of option ARM pools in conjunction with macroeconomic conditions that remain under duress. The actions reflect Moody's updated loss expectations on option arm pools issued from 2005 to 2007."

Some of the tranches were downgraded to as low as 'Caa3', and 'Caa2'.

WaMu was bought by JPMorgan in the fall of 2008. For many years the Seattle-based thrift was one of the largest originators of POAs, which today are defaulting in record numbers.

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