Manufactured Housing Still Causes Distress.

New York -- The credit performance of U.S. structured finance securities in asset-backed, commercial mortgage and residential mortgage classes improved, but only slightly, in the first half of last year.

And manufactured housing continued to be a big drag on the performance of asset-backed securities, according to Moody's Investors Service.

The aggregate, one-year impairment rate for structured finance securities was 1.5%, slightly slower than the 1.6% impairment rate reported in December of 2003, according to a Moody's first-half 2004 update. But the impairment rate remained above the historical averages, the rating agency noted.

While manufactured housing was a driver in new ABS impairment, the home-equity sector appears more stable, according to Moody's. And residential MBS continue to fare extraordinarily well.

Securities backed by manufactured housing loans, equipment leases or aircraft leases made up more than 80% of all ABS impairments in the first half of 2004.

Moody's projects that the RMBS and HEL securities that became newly impaired in the first half of 2004 will ultimately lose a median of 16.5% of their original balances if they carried an investment-grade rating at origination, and 54.8% if they were rated speculative-grade at origination. Those expected loss rates are slightly higher than the historical averages, Moody's said.

Jian Hu, director of structured finance default research at Moody's, said the disparity between expected loss rates on investment-grade (Baa3 or higher) securities and speculative-grade securities is not surprising.