Influential rating agency Standard & Poor's said on Tuesday that it may downgrade $12 billion of subprime mortgage-backed securities because losses in this low-end part of the home-loan market have increased and will probably get worse.
Credit ratings on 612 classes of residential mortgage-backed securities (RMBS) backed by U.S. subprime collateral have been put on CreditWatch with negative implications, S&P said. Beginning in the next few days, the agency said most of these classes will be downgraded.
That covers about $12.078 billion in rated securities, or 2.13% of the $565.3 billion in U.S. RMBS rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006, the agency noted.
The agency said it's also reviewing ratings of Collateralized Debt Obligations (CDOs) that invested in the RMBS that could be downgraded. (CDOs are a bit like mutual funds that hold asset-backed securities. Many CDOs bought subprime RMBS, helping to fuel the housing boom earlier this decade.)
This is a really big story. I would add the following points:
1.) S&P is downgrading the underlying mortgage pools of certain CDOs. We have yet to see how this will effect the actual CDOs. While I don't think the implications are good, we'll have to see how this plays out.
2.) I would like to see a diffusion index of where these bonds are. If owership is spread out or concentrated.
3 comments:
Back in the early 80s, I remember a friend told me that the only way you could get a loan was to prove you didn't need it.
Twenty years later it seemed like the only way you couldn't get a loan was to prove you couldn't afford it.
I think we're going back to the old system...
those running for the door are going to have a hell of a time not letting it hit them on their way out
:0
CYA before they get sued for abetting the sale of risky securities?
Does the fact that there has been some indication that the rating agencies were under scrutiny for their past practices figure in this at all?
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