March 15 (IFR) - As the credit crisis recedes and underwriting standards begin to loosen, bonds backed by consumer debt such as auto loans, credit card payments, and student loans are becoming increasingly risky, Moody's said on Thursday.
Relaxed underwriting standards, more complex structures, and new untested market participants are just three of the trends suggesting that risk is on the rise for some sectors of the asset-backed securities market, Moody's said in a report.
Even in the residential mortgage sector, which has not seen a significant return of private-label securitization, riskier non-prime, non-traditional mortgage originations are appearing.
With credit standards slipping in asset classes such as subprime auto loans, and risky crisis-era structural features showing up in transactions, credit rating agencies need to make sure they are keeping up with the deteriorating credit standards and rating the these bonds appropriately -- which means withholding their coveted Triple A rating if it is not deserved, or making sure there are other features that mitigate the risks, said Moody's.
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