May 30 (Bloomberg) -- Fitch Ratings modified how it assesses outstanding securities backed by Alt-A U.S. mortgages by starting to update projections for losses from non-delinquent loans instead of keeping estimates static from the time of issuance.

A record jump in delinquencies and defaults prompted the change, the third-largest credit-ranking company said today in a statement. Borrowers are at least 60 days late on 11 percent of adjustable-rate Alt-A loans backing bonds created in 2006 and rated by the firm, compared with a historical average of 1 percent to 2 percent.

``There wasn't the constant roll of current loans to delinquencies that's happening in the current market,'' Vincent Barberio, a managing director at New York-based Fitch, said in a telephone interview.

Ratings companies have adjusted their rankings processes after facing criticism from lawmakers and investors for failing to foresee a record rise in U.S. foreclosure rates and then being slow with downgrades. Standard & Poor's now bases ratings on outstanding mortgage bonds on the expected performance of underlying loans over their lives, not just the next few years.

Alt-A home loans were made to borrowers who wanted atypical terms such as proof-of-income waivers, delayed principal repayment or investment-property collateral, without having to offer sufficient compensating attributes.

Review for Downgrades

In March, Fitch placed almost $160 billion of Alt-A mortgage securities from 2005, 2006 and 2007 under review for downgrades, or about 75 percent of the total. This month, the ratings company lowered rankings on the non-AAA classes based on the new method, said Grant Bailey, a senior director at Fitch.

Fitch has applied the same process for several years to subprime-mortgage securities, backed by loans made to borrowers with poor credit or high levels of debt.

The firm hasn't yet decided whether to use its new surveillance approach on prime-jumbo mortgage securities, Barberio said. Jumbo mortgage are larger than government- chartered Fannie Mae and Freddie Mac can finance, or $417,000 in most areas for the past three years.

In the recent review, Fitch cut $9.2 billion out of the $13.9 billion of non-AAA rated Alt-A securities it assigned rankings to during the past three years. Most of the bonds that weren't lowered remain on watch for downgrades.

Top-rated securities accounted for about 90 percent of the debt created in Alt-A deals. The company will downgrade many over the next few months, Bailey said.

``I don't know if it's going to be a majority or not but I think a large number of the senior classes are facing downgrade pressure,'' he said.

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

Last Updated: May 30, 2008 17:03 EDT