Only 3% of MBS End Up in Default.(Mortgage Backed Securities )

Less than 3% of the 13,419 U.S. structured finance securities issued over the last 10 years have defaulted, according to Moody's Investors Service.

In its first ever study of default and loss in the event of default for structured securities, Moody's said that its own structured finance ratings have provided investors with a powerful ordering of credit risk. The study looked at gross defaults, uncured defaults, material impairments and losses in the event of default.

The study examined 167 defaults among asset-backed securities, 80 among commercial mortgage-backed securities and 143 residential mortgage-backed securities.

"Gross payment defaults are the simplest measure of performance," said Moody's analyst Jian Hu. "However, in the structured finance market, defaults are often cured within a short period of time. Thus, as an alternative measure of performance, we also tracked the number of securities that defaulted and were not subsequently cured."

Of the 390 payment defaults during the study period, 94 were subsequently cured.

The study also looked at structured finance securities that have not defaulted yet, but appear almost certain to default in the future because of "material impairment" as reflected in rating levels that were "Ca" or "C."

Moody's also looked at loss severity. For the 84 defaulted securities that had zero balance by year-end 2002, the average loss severity rate given default was ...