(Updates with analyst comments and adds details throughout.)

 
   DOW JONES NEWSWIRES

Standard & Poor's cut its ratings on about $30.9 billion of bonds backed by mortgage loans issued to prime borrowers for high-priced homes in 2007 as this housing segment has seen a sharp rise in delinquencies.

Banks and lenders were expected to have tightened their underwriting standards in 2007 as the meltdown in subprime loans was already underway at that time. However, broader economic factors and the continued drop in home prices have led to an increase in homeowners not paying their mortgages, especially among those who bought a home between 2005 and 2007.

This deterioration in the loan performance has translated to higher loss expectations on bonds that are made from pools of such loans.

"Performance measures for 2006 and 2007 securitizations across the residential mortgage-backed securities landscape are much worse than for any previous [year]," said Walt Schmidt, a mortgage strategist with FTN Financial in Chicago.

"So, ... the resulting losses for collateral originated for those [years] will be much worse than for others," he said.

Based on these worsening expectations, S&P on Monday lowered ratings on 620 classes from 49 transactions and removed 85 of them from watch for possible downgrade. Many were lowered from AAA status.

The collateral on the downgraded deals includes both prime jumbo fixed-rate and adjustable-rate mortgages on one- to four-family residential properties. The downgraded transactions were part of deals put together by Bank of America, Bear Stearns and Continental Home Loans.

S&P affirmed its ratings on 186 classes from 28 transactions issued between 2006 and 2007, including 23 downgraded deals. It also removed three of the affirmed ratings from watch for downgrade.

Jumbo loans, which are a minimum of $417,000, generally carry higher interest rates because they are too big to be guaranteed by Fannie Mae (FNM) or Freddie Mac (FRE). S&P said it expects a 40% loss severity on these loans issued in 2006 and 2007.

S&P has said it expects loan losses to mirror 1999, which before 2005 was the worst year in the past decade in terms of foreclosures on homes with jumbo loans. The ratings agency expects the 2007 losses to top the losses on the 1999 loans, but expects the losses' timing to be more similar to that year than any other.

The ratings agency added that the higher loss expectation means that the existing cushion to protect bondholders from losses may not be sufficient, which prompted the downgrade of these transactions.

-By John Kell, Dow Jones Newswires; 201-938-5285; john.kell@dowjones.com

(Prabha Natarajan contributed to this report.)