Despite a massive runoff, U.S. banks continue to hold $1.7 trillion in private-label MBS on their books and Standard & Poor's estimates additional losses on these mortgage-backed securities could reach $260 billion.
S&P analysts expect to see $165 billion in losses from subprime MBS, $80 billion from Alt-A and $5 billion from prime MBS.
"Given that securitized structures assumed a certain loss percentage before equity tranches began to suffer losses, even relatively low nonperforming balances in prime mortgage structures would be damaging to equity tranche investors," S&P said in a report.
The Putting a Dollar Value on Legacy RMBS Losses report points out that $250 billion of the $1.7 trillion in securitized loans are presently in bankruptcy, foreclosure or REO and further declines in the performance of the private-label MBS can be expected.
"We believe these loans will keep continued downward pressure on housing prices," the report said.
