Moody's Investors Service will be publishing its estimates for recoveries on most of the RMBS it rated that were issued in the 2005 to 2008 period.

In a release today, the rating agency said it is launching an initiative to publish bond recovery estimates for every security or tranche of all U.S. subprime, prime Jumbo, Alt-A and option ARM RMBS deals that it rated over the said period.

With the housing market still deteriorating, the rating agency expects many of these securities to take write-downs on their principal.

"The timing and the extent of the write-downs, however, will vary significantly across securities, driven primarily by the magnitude of losses on the underlying collateral, transaction structures, and loss mitigation practices adopted by servicers," Moody's Senior Vice President Debash Chatterjee said. "Therefore it is important to provide investors with expected recovery estimations that are at the level of the individual security."

The firm will publish the bond recovery estimates in its ongoing pool expected loss publications, which will be available on its Web site. Aside from the recovery estimates, it will also be enhancing its current pool expected loss publication by adding the estimated future loss severity for pools and the proportion of loans in the pool that are less than 60 days delinquent that Moody"s expects to default in the future.

Moody's  expects to post recovery estimates on over 35,000 securities in the next few months as it proceeds through the ratings review after its recent announcement that it had placed securities from 2005 to 2008 vintage subprime, prime Jumbo, Alt-A and option ARMs on watch. These actions were made after revising its underlying loss projections. The rating agency will then be updating the recoveries on a periodic basis.

The recovery estimates are based on the agency's baseline loss expectation on the underlying mortgage pool. This considers that home prices will drop by an added 7% to 10% and unemployment will peak at roughly 10.5%, both in the 2H10.

Moody's noted that when assigning ratings it takes into account not only the estimated recovery at a given rating level, but also the volatility of recoveries at stressed loss levels.

To illustrate the volatility of bond recoveries as losses change, the firm will also be reporting tranche recoveries under two stressed scenarios where collateral losses go over its base expectations.

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