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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Box-By-The-Riviera™ who wrote (79857)	3/10/2007 6:12:01 PM
From: Dan3	Read Replies (4) of 110194

$6.5 Trillion with a "T" in mortgage securities wilting in the sun Check out this link to a story slated for tommorrow's New York Times: nytimes.com Message 23357293 This utter failure in bond rating could mean the end of private bond rating agencies like Moody's For years, investors cared little about risks in mortgage holdings. That is changing. “I would not be surprised if between now and the end of the year at least 20 percent of BBB and BBB- bonds that are backed by subprime loans originated in 2006 will be downgraded,” Mr. Lawler said. Still, the rating agencies have yet to downgrade large numbers of mortgage securities to reflect the market turmoil. Standard & Poor’s has put 2 percent of the subprime loans it rates on watch for a downgrade, and Moody’s said it has downgraded 1 percent to 2 percent of such mortgages that were issued in 2005 and 2006. Fitch appears to be the most proactive, having downgraded 3.7 percent of subprime mortgages in the period. The agencies say that they are confident that their ratings reflect reality in the mortgages they have analyzed and that they have required managers of mortgage pools with risky loans in them to increase the collateral. A spokesman for S.& P. said the firm made its ratings requirements more stringent for subprime issuers last summer and that they shored up the loans as a result. Meeting with Wall Street analysts last week, Terry McGraw, chief executive of McGraw-Hill, the parent of S.& P., said the firm does not believe that loans made in 2006 will perform “as badly as some have suggested.” Nevertheless, some investors wonder whether the rating agencies have the stomach to downgrade these securities because of the selling stampede that would follow. Many mortgage buyers cannot hold securities that are rated below investment grade — insurance companies are an example. So if the securities were downgraded, forced selling would ensue, further pressuring an already beleaguered market. Another consideration is the profits in mortgage ratings. Some 6.5 percent of Moody’s 2006 revenue was related to the subprime market.

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