S&P Cuts, May Cut Up to $534 Billion of Subprime Bonds
January 31st, 2008Via: Reuters:
Standard & Poor’s on Wednesday said it cut or may cut its ratings on $270 billion worth of U.S. mortgage-backed securities while putting $264 billion of collateralized debt obligations on watch for a possible downgrade.
The ratings action affects 6,389 classes of U.S. residential mortgage-backed securities backed by first-lien subprime loans and 1,953 ratings from 572 global CDOs backed by asset-backed securities and other CDOs.
S&P’s actions on mortgage-backed securities follow its announcement on January 15 of further changes and planned changes to its methods for analyzing mortgage-backed securities and CDOs, respectively.
Earlier this month, S&P raised its expectations of losses on subprime loans originated in 2006 to 19 percent from 14 percent.
“Today’s rating actions incorporate our most recent economic assumptions and reflect our expectation of further defaults and losses on the underlying mortgage loans,” S&P said.
S&P slashed the ratings on $34.7 billion of RMBS originated in 2006 while placing another $136 billion under review for potential downgrade. In addition, S&P cut $15.4 billion of RMBS securities from 2007, while placing $34.8 billion on review for downgrade, it said. In addition, it affirmed the ratings on 1,735 RMBS classes from 2006 and 691 RMBS tranches from 2007.
The rating agency said the CDO downgrades and credit reviews were a result of RMBS credit deterioration and overall stress affecting the residential mortgage market. CDO managers were large buyers of RMBS, which they layered into their securities over recent years.
“The housing market, especially the subprime sector, will continue to decline before it improves and housing prices will come under stress,” said S&P. “We expect losses to continue to increase with borrowers experiencing rising loan payments as adjustable rate mortgages reset.”
