April 2 (Bloomberg) -- Moody's Investors Service is the least accurate assessor of the risks of subprime-mortgage securities among the three largest credit-rating companies, while Fitch Ratings is the best, according to UBS AG.

Moody's assigns Caa2 or lower ratings to just 12 percent of the 292 bonds underlying benchmark Markit ABX indexes that UBS analysts expect to default. Both Fitch and Standard & Poor's tag 57 percent of the bonds with equivalent rankings, according to a report from the New York-based analysts yesterday. A rating of Caa2 or CCC is eight levels below investment grade.

``Moody's trails badly,'' UBS analysts including Laurie Goodman and Thomas Zimmerman wrote.

Ratings firms have been pilloried by lawmakers and investors for failing to foresee a record surge in U.S. foreclosure rates and then being slow to downgrade debt tied to homeowners with poor credit, enabling looser lending ahead of the crash and costing bondholders. The rating services are based in New York.

Fitch was rated the most accurate also because it doesn't have AAA ratings on any securities tracked by ABX indexes that UBS expects to default, while Moody's has 35 ranked the equivalent Aaa and S&P has 24 with top ratings, the report said. Fitch also rated the fewest ABX subprime bonds -- only 200 of the 400 rated by Moody's and S&P -- meaning it was the ``most conservative'' when assessing new deals in 2005, 2006, and 2007.

Fastest

``Fitch has been the fastest of the rating agencies to recognize and correct its subprime mistakes,'' the UBS analysts wrote.

Moody's was criticized initially by the securities industry for being too fast in downgrading the debt, said Noel Kirnon, Moody's executive vice president for global structured finance.

``We've been very, very public about our protocol that we were going to be very, very deliberate,'' Kirnon said. ``Early on, we took some block ratings actions that people said overshot the mark. And now, in some quarters, they say we have the worst performance.''

Kirnon said Moody's has been rolling out ratings actions almost daily all year. UBS is relying on a snapshot in time to evaluate Moody's response to subprime, he said.

``Six months or a month in the future, this may all look different,'' Kirnon said.

Bond Insurers

The UBS report follows claims by New York-based Ambac Financial Group Inc., the second-largest bond insurer, and Security Capital Assurance Ltd. of Bermuda, that Fitch has been too aggressive in estimating their possible losses.

Armonk, New York-based MBIA Inc., the largest bond insurer, asked Fitch to stop assessing its financial strength because it disagreed with the company's ratings methods.

``What we've tried hard to do is not just to react to how things are deteriorating but to project where things are going,'' said Glenn Costello, Fitch's risk officer for structured finance and former co-head of residential mortgage bonds, in a telephone interview today.

S&P has lowered or affirmed its ratings on about 1,100 of the AAA and AA subprime bonds created in 2006 that it put under review in January, and has about 1,500 more subprime securities to complete reviews on, according to Andrew Giudici, a director. The firm needs to look at the bonds on a one-by-one basis, doing things like running computer models with different assumptions on how long the underlying loans will remain outstanding, he said.

`Cautious and Thorough'

``We are moving as rapidly as we can, but we also want to be as cautious and thorough as we can in our analysis,'' said Ernestine Warner, a senior director at the ratings company, in telephone interview today.

The four series of ABX indexes are used to create credit- default swaps that offer payments if the related bonds aren't repaid, in return for regular insurance-like premiums.

The UBS research team is part of a group that ranked third for structured securities in a poll by Institutional Investor magazine last year. They didn't look at ratings on collateralized debt obligations used to repackage subprime bonds into new securities with varying risks. CDOs have been the largest source of the more than $230 billion of writedowns and credit losses at the world's largest financial companies since the start of 2007.

More than $600 billion of subprime-mortgage bonds are outstanding, according to Deutsche Bank AG. About $1 trillion of CDOs comprised of asset-backed securities, typically subprime bonds, existed in mid-2007, Moody's has said.

Fitch is a unit of Paris-based Fimalac SA. S&P is a unit of New York-based McGraw-Hill Cos. Moody's is a unit of New York- based Moody's Corp., whose largest shareholder is Warren Buffett's Berkshire Hathaway Inc. UBS is based in Zurich.

Last year, S&P rated 94 percent of new U.S. mortgage bonds without guarantees from government-linked entities such as Fannie Mae, according to industry newsletter Inside MBS & ABS. Moody's ranked 80 percent, Fitch rated 47 percent, and DBRS Ltd. assessed 6.8 percent.

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: April 2, 2008 17:24 EDT