By Eamon Quinn

DUBLIN--Investors who hold bank debt securities backed by home loans issued by some Irish lenders are facing higher losses than previously estimated as Ireland's economy takes longer than expected to recover from its banking crisis, Fitch Ratings said Wednesday.

Default rates could rise to 20% of the value of some pools of so-called residential mortgage-backed securities, or RMBS, up from the 15% default rate previously projected. Meanwhile, Irish home prices will fall by 60% from their 2007 peak, compared with a previous estimate of 50%, Fitch said in a new report called Ireland, Mortgage Loss and Cash Flow Assumptions.

It said the sharp increase in arrears comes as the country's debt crisis, now in its fifth year, makes it difficult for Irish home owners and buy-to-let investors to meet their mortgage repayments.

"There has been a sharp increase in mortgage arrears since the last criteria review," Fitch said. "More importantly, the delay in economic recovery, the austere fiscal consolidation and falling house prices mean the speed at which arrears are increasing is unlikely to slow in the near future."

Amid a property market crash, Ireland has been striving since 2008 to get a grip on the huge costs it has incurred in saving its banks from collapse. When those costs got too much to bear, it was forced to embrace a bailout deal and austerity program with the European Union and International Monetary Fund in late 2010.

Unemployment has soared to 14.8% from about 4.5% before the crisis in 2007.

Residential mortgage-backed securities often include pools of buy-to-let home loans that show a higher level of default, say analysts. So Fitch's estimates measuring potential default rates by their value can't be directly compared with the Irish central bank's home arrears data measuring the number of arrears, and can only include mortgage loans for residential home owners.

The latest central bank report, published in May, showed 77,630 residential mortgages, or 10.2% of those in the Irish republic, were in arrears for more than 90 days at the end of March. That is up from December's figure of 70,945 mortgages, or 9.2%, that were in arrears.

The central bank also said the number of loans that have been in arrears for more than 90 days or have been restructured and continue to perform was 116,288, or 15.2% of all accounts.

Fitch said its projections are based on mortgage-backed securities issued by five lenders--Ulster Bank Limited, a unit of Royal Bank of Scotland Group; Educational Building Society, a unit of Allied Irish Banks Plc; Permanent TSB; ICS Building Society, a unit of Bank of Ireland Plc; and KBC Bank Ireland.

Write to Eamon Quinn at eamon.quinn@dowjones.com

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