Magazine article Mortgage Banking

Moody's Cuts Wachovia's Ratings; Outlook Negative

Magazine article Mortgage Banking

Moody's Cuts Wachovia's Ratings; Outlook Negative

Article excerpt

New York--based Moody's Investors Service announced in July it had downgraded its ratings both on Wachovia Corporation and on its lead bank, Wachovia Bank NA, both based in Charlotte, North Carolina.

Moody's downgraded Wachovia Corporation senior debt to A1 from Aa3, and on Wachovia Bank its financial strength rating dropped to B from B+ and long-term deposits to Aa2 from Aa1. Wachovia's Prime-1 short-term ratings were affirmed.

Meanwhile, Wachovia Bank NA's deposit and debt ratings benefited from a one-notch lift because Moody's said it believes the bank enjoys high systemic support. Following the downgrade, Moody's maintained a negative outlook on Wachovia's ratings.

Moody's said that the downgrade and negative outlook were driven mainly by a sizable increase in its loss expectations on Wachovia's $122 billion adjustable-rate mortgage, or option-ARM, portfolio.

"Falling home values have undermined a historical strength of the portfolio, which was its sound appraisal process," said Moody's Senior Vice President Sean Jones. "With home prices falling sharply, and with more customers having no equity in their homes, more loans are defaulting, and there is greater severity of loss on those loans that default. …

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