Subprime mortgage loss assumption increased by S&P

For subprime mortgages which were originated in 2006, packaged into bonds & sold to investors, the credit rating agency - Standard & Poor's is increasing its loss assumption to 19% which was 14% previously because of increasing defaults for such mortgages.

This change has been planned as Standard & Poor's is altering the overall ratings assumptions that are used for reviewing collateralized debt obligations backed by MBS.

Debt & bonds originated in 2007, 2006 & 2005 are expected to be most affected as these are more sensitive to present market downturn.

Standard & Poor's has planned some other changes to assumptions:

It will extend stress-case losses scenarios which presently are run for thirty six months period to span entire life of bonds. This stress-case loss is a test of how bonds are going to perform under worst case scenarios, and

Excess capital that is placed in a deal for covering some portion of losses known as excess spread is also being revised by Standard & Poor's.