Batten down the hatches in US mortgages

The US home equity loan market has long been a fertile source of assets for ABS CDOs, offering a nice boost to yields in an otherwise frustratingly tight spread environment. But recent data from Moody’s and Lehman Brothers reveal that projected HEL rating actions in 2007 will almost double those since 2003, and those actions are all in one direction – down. Lehman is expecting about 700 downgrades of triple-B minus rated HEL notes in a 5% house price appreciation (HPA) environment and 1,000 downgrades if HPA is zero.