U.K. nonconforming residential mortgage-backed securities are expected to continue deteriorating into 2011, according to a recent Moody's Investors Service forecast for asset classes in Europe, the Middle East and Africa.

The report said that while gross domestic product growth is expected to turn positive in many countries in EMEA later this year or in early 2010, employment and home prices will continue to deteriorate well into 2010, which will lead to securitized loan losses remaining at elevated levels into 2011 and 2012.

"While there appears to be a glimmer of light at the end of the tunnel, it is still too early to interpret improvement of slowed deterioration in a particular section as a sign of recovery," said Frederic Drevon, Moody's head of EMEA securitization.

Other securitized residential mortgage markets that may take some time to recover include Spain's, which is likely to continue to deteriorate into 2011/2012. According to Moody’s there has been a "significant" increase in defaults in this market in the past six months. The Moody's report also indicated that losses in U.K. nonconforming RMBS have accelerated during that time period.

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