NEW YORK -- Moody's Investors Service Inc. has placed $1.2 billion of Citicorp residential mortgage-backed securities under review, in a move that illustrates the unpredictability of some securities as rates change.

The rating agency said it is reviewing 79 classes of securities involving 26 transactions for possible upgrade and 27 transactions for possible downgrade.

Some of the securities have fallen in value due to high levels of prepayments, while others have gained in strength as a result of the same rate movement.

"The double-edged nature of prepayments on credit risk was clearly evident in these securities," wrote Moody's analysts Myer R. Strauss and James F. Schmidbauer.

For pools of loans in line for an upgrade, the Moody's analysts said, rapid prepayments have contributed to a high ratio of credit enhancement relative to potential losses.

"On the other hand, securities under review for downgrade are experiencing higher-than-expected delinquencies and losses," the analysts said.

"For 17 of the transactions, spread accounts, which provide first-loss protection to security holders, could fall short of their target amounts because of poor delinquency performance, as well as large prepayment liquidations."

About $523.8 million of securities are under review for upgrade and $700.8 million are under review for downgrade, the agency said.

Moody's said the review will span mortgage pools originated in 1987 through 1993.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.