Moody's Investors Service Inc. said Thursday that it is reviewing all 2005, 2006, and 2007 subprime mortgage bonds for credit rating downgrades, covering debt with $680 billion of original balances.

The review reflects an increase in Moody's expected losses on the underlying loan pools, the rating agency said.

Losses for such mortgages backing 2006 securities will probably reach 28% to 32%, up from a previous projection of 22%, Moody's said. It cited "the continued deterioration in home prices, rising loss severities on liquidated loans, persistent elevated default rates, and progressively diminishing prepayment rates."

Rating cuts typically require holders such as banks and insurers to boost their capital levels; sometimes they must do so by unloading the debt.

Moody's and Standard & Poor's, criticized by Senate Banking Committee Chairman Chris Dodd and other lawmakers for assigning top grades to mortgage debt, last year stepped up cuts.

The Obama admistration's $75 billion mortgage modification plan will have a "mitigating impact" on home loan losses, which Moody's said is reflected in its latest estimates. Losses on subprime loans underlying 2006 securities would reach 33% "assuming no government intervention or concerted industrywide modification effort," Moody's said.

Last year Moody's cut a record 23,713 classes of U.S. dollar-denominated asset-backed securities, mainly subprime and second-mortgage bonds, or $1.4 trillion by original balances, compared with a record $99 billion the previous year. It cut a record 18,614 of other U.S. residential mortgage bonds in 2008, with $576 billion in original balances, compared with a previous record of $10.6 billion in 1994.

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