"These reports will open a dialogue with investors during the period when they need information the most," says Warren Kornfeld, a managing director in Moody’s structured finance group.
But why now? Moody’s has never published pre-sales reports in this market before, and some may see their decision as an indicator of the worrying deterioration of credit quality in the US sub-prime RMBS market.
Moody’s maintain that the timing of the announcement is coincidental, as the lengthy process required to put together these publications began more than a year and a half ago. And although there was investor demand for this information 18 months ago, that demand is markedly higher now. Two of the biggest lenders in the US sub-prime RMBS market, HSBC and New Century Financial Corp, have been forced to set aside more money than previously expected to cover projected losses. HSBC’s provisions were 20% higher than forecast at $10.6 billion. New Century’s share price fell 36% after it issued a warning of weaker results as a result of rising defaults.
Coincidence or not, Moody’s publishing of these reports is being done in an extremely timely fashion. Delinquency rates are higher than at any time since the recession of 2001. One in five sub-prime loans are expected to end in foreclosure, costing more than 2 million Americans their homes.
Moody’s says these reports will be a significant move forward in terms of information provided, and it will be publishing them for no extra fee. It does not expect many instances of definitive ratings differing from the provisional ratings set out in the pre-sale reports.