The performance of subprime loans made during the real estate boom continues to worsen, putting investors on an even bigger hook. This week, Moody’s Investors Service downgraded its ratings on a total of $42.2 billion of residential mortgage-backed securities (RMBS) made up of subprime home loans.

The agency said the downgrades are a result of “continued performance deterioration in subprime pools,” which is likely to worsen further as still-falling home prices and high unemployment trigger more defaults. The ratings actions reflect Moody’s updated loss expectations on subprime securities issued between 2005 and 2007.

The downgraded mortgage bonds include $30 billion issued by CountryWide Asset Backed Securities Inc. (CWAB), $8.8 billion issued by Ace Securities Corp., and $3.4 billion from Ameriquest.

Moody’s also alerted investors this week that it has downgraded $7 billion of RMBS backed by Alt-A residential mortgage loans made in 2005, again citing “rapid performance deterioration.” Alt-A is considered to be mid-grade risk, falling somewhere in between prime and subprime.

The agency’s Alt-A downgrades include $3.8 billion issued by Countrywide, $2.6 billion issued by MASTR Alternative Loan Trust and MASTR Adjustable Rate Mortgage Trust, and $662 million issued by Opteum Mortgage Acceptance Corp.

While any association with the words “real estate boom” automatically throws up a red-flag for risky, Moody’s has indicated that loans written prior to the big-bubble-run, before underwriting standards went loose, may turn out to be a bad bet too.

Last week, the New-York based ratings agency said it is also looking at possible downgrades on $50 billion in subprime RMBS issued before 2005, which would represent more than 80 percent of all subprime residential mortgage bonds from pre-2005 vintages.

Moody’s has also put $48 billion in Alt-A RMBS and $43 billion in prime jumbo RMBS issued before 2005 on watch for possible downgrade, signaling that deterioration among earlier loans has spread beyond risky subprimes.