Oct. 4 (Bloomberg) -- Subprime mortgage bonds created in the first half of 2007 contain loans that are going delinquent at the fastest rate ever, according to Moody's Investors Service.

The average rate of ``serious loan delinquencies'' in the securities has been higher than 2006 bonds, New York-based Moody's analysts Ariel Weil and Amita Shrivastava wrote in a report today. Serious loan delinquencies are those 60 days or more past due, including properties in foreclosure or already foreclosed upon.

``It is shocking what you see,'' said Kyle Bass of Hayman Advisors LP, a Dallas-based hedge fund that reported a 400 percent return on its bet the U.S. housing market would fall. ``Anything securitized in 2007 has got to have the worst collateral performance of any trust I've seen in my life.''

Moody's, Standard & Poor's and Fitch Ratings have been downgrading subprime securities issued in 2006 as defaults on the underlying loans rise to record highs. Fitch said yesterday it's now reviewing ratings on bonds created in 2007.

Moody's has cut ratings or placed on review 496 bonds backed by first mortgages issued last year, or 3 percent of such bonds created in 2006. Through Sept. 21, S&P had cut ratings on 433 securities from last year and backed by subprime loans, or 9.1 percent of the total. Fitch yesterday cut ratings on $18.4 billion of bonds backed by subprime loans.

Worst Year Ever

Moody's said 6.3 percent of the loans in bonds issued in the first half were seriously delinquent four months after their securitization. The rate was 4.2 percent after four months for bonds created last year, and was 4.5 percent for 2001 bonds.

``We see this as a continuation of the trend we had in 2006,'' David Teicher, a Moody's managing director, said in a telephone interview. ``We're studying it, looking at the vintage carefully, as we are with all of the other vintages.''

The Moody's report today compares with research from S&P in March that said 2006 bonds may be the worst-performing ever.

For bonds older than six months, 2006 was the worst year for serious delinquencies since at least 2000, Moody's said in the report. Data in the Moody's report suggests that accelerating delinquencies from 2007 bonds are likely to eclipse 2006.

ABX Indexes

Many of the loans that investors shunned in 2006 were able to be successfully securitized in 2007 because of the limited availability of new loans to purchase, according to Andrew Chow, who manages about $7 billion in asset-backed bonds and mortgage securities at SCM Advisors LLC in San Francisco.

``It's not surprising that the performance of that type of loan is in fact even worse than the average of 2006 because these are the loans that were rejected from those deals,'' Chow said.

Subprime mortgages are given to borrowers with poor credit or high debt. The rise in loan defaults and foreclosure followed a period of lax lending standards by the banks making the loans and little due diligence by investors buying the repackaged debt.

The perceived risk of owning subprime mortgage bonds created in the first half of 2007 rose today, according to traders of ABX indexes of credit-default swaps.

The ABX index linked to 20 securities from the first half and given the lowest rating of BBB- fell 2.5 percent to 36.67, the lowest since the index began trading in July, according to, Markit Group Inc., the index administrator. The index rated AA, the second-highest rating, fell 0.93 percent to 87, London-based Markit's composite prices show.

ABX contracts allow investors to speculate on or hedge against the risk the underlying securities aren't repaid as expected.

To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Mark Pittman in New York at mpittman@bloomberg.net.

Last Updated: October 5, 2007 19:14 EDT