Moody's Investors Service Inc. placed $143 billion of jumbo mortgage bonds under review for downgrades because of higher loss projections.
Grades of senior securities issued in 2005 will be most affected by the new loan-loss projections, the New York rating company said last week.
It now expects losses of 3.8% on loans underlying 2005 prime jumbo bonds, with estimates of 8% for 2006 securitizations, 10.9% for 2007 debt and 12.3% for 2008 securities.
The revisions were prompted by "the rapidly deteriorating performance of jumbo pools in conjunction with macroeconomic conditions that remain under duress," Moody's said.
Recent jumps in "serious delinquencies" among jumbo loans will be compounded by weakness in the housing market and economy, the company said.
An "overhang of impending foreclosures will impact home prices negatively," and values likely will decline 9% more before bottoming in the second half of 2010, Moody's said.
At the same time, the unemployment rate will rise to peak at about 10.6%, said the firm, which had earlier forecast the jobless rate cresting at 9.8%.
Moody's also said it expects the government's effort to curb foreclosures to be less effective than it previously expected because it has "failed to gain traction."
Jumbo home loans are larger than the government-sponsored enterprises Fannie Mae and Freddie Mac can buy or guarantee. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas.
Ratings reductions typically boost the capital needs of bondholders such as banks and insurers and force some investors to sell debt.
Moody's and Standard & Poor's Corp. were criticized by lawmakers for assigning top grades to mortgage debt proven too high by later defaults.
The rating agencies have already cut ratings on hundreds of billions of dollars of notes in the $1.6 trillion market for so-called nonagency mortgage bonds, which lack government backing, lowering many securities multiple times.
In its last forecast, in March, Moody's predicted cumulative losses, as a percentage of original loan balances, of 1.7% for 2005 jumbo bonds, 3.6% for 2006 securities, 5.1% for 2007 securitizations and 6.2% for 2008 debt.
Since March, serious delinquencies among the pools, as a percentage of original balances, have risen to 3.2% from 2.1% for the 2005 bonds; to 6% from 3.8% for the 2006 securities; to 7.6% from 4.8% for the 2007 debt; and to 7.8% from 4.6% for the 2008 group, Moody's said.