Private-label residential MBS interest shortfalls and liquidity disruptions that Standard & Poor's has been observing are likely to continue for some time, a credit analyst said in an online broadcast.

S&P associate director James Taylor said to the extent these shortfalls exceed the rating agency's tolerance levels it likely will continue to take rating actions linked to the trend.

So far, since applying new criteria in late March in line with interest shortfalls, S&P has lowered its ratings on 91 securities by an average of six notches. Roughly 24 of these downgrades involved a move from investment grade to non-investment grade status.

S&P director Jeremy Schneider said interest shortfalls reflect situations where there is less collateral available, which means servicers may come up short on advances tied to delinquent loans.

Schneider said servicers may be reimbursing themselves after engaging in modifications or when they determine advances they previously made were non-recoverable.

The bulk of the PLS MBS market continues to consist of seasoned deals from the so-called boom years of relatively loose underwriting standards. In general these bonds have performed poorly.

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