Thursday, July 12, 2007

S&P Reduced the Ratings on $6.39B in Mortgage-Backed Securities

Earlier this week S&P (and Moody’s) stated that they were looking at reducing the ratings on about $12B of mortgage backed securities. Two days later here are the first results, it only looks like they reduced the ratings on $6.4B of RMBS. I am certain that they have some criteria, although these may be changing, for downgrading these securities. It would be interesting to see the criteria. Also I do not think the rating agencies are done yet. Afterall, there is still a large number of ARM re-sets to occur before the end of the year. From Market Watch:

Rating agency Standard & Poor's said late Thursday that it downgraded $6.39 billion of subprime residential mortgage-backed securities after warning earlier this week that cuts were coming.

The agency said on Tuesday that it may downgrade 612, or $7.35 billion of residential mortgage-backed securities (RMBS).

This will be an ungoing process for some time.

Of those, S&P cut ratings on 498 classes, it said on Thursday. S&P had placed another 70 classes of RMBS on CreditWatch for possible downgrade before this week. On Thursday, the agency said it was downgrading 64 of those classes.

The 562 downgrades affect roughly $6.39 billion in rated securities, or 1.13% of all RMBS first-lien subprime mortgage collateral rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006.

S&P's announcement on Tuesday, and similar downgrades unveiled by rival agency Moody's Investors Service, were a dramatic sign that subprime mortgage woes aren't going away any time soon and could prolong a downturn in the housing market.

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