S&P May Cut $12 Billion of Subprime Mortgage Bonds

Discussion in 'Wall St. News' started by THE-BEAKER, Jul 10, 2007.

  1. varuns


    yeah heard about it this morning.. its definitely very big news..
  2. S2007S


    it is big news, surprised I didnt hear at 8pm on cnbc
  3. thats because cnbc wouldnt know big news if it kicked them in the arse.

    probably because its stock negative they did not mention it.

    also their so called market professionals preseenting do not understand credit spreads and the bond market.

    they only think there is one market and that is the us stock market.
  4. varuns


    yeah thats true abotu CNBC but maybe a little harsh..
  5. RedDuke


    The same one from WSJ.

    Here we go, let's see what effect this downgrade will have on Hedge Funds since now they will be forced mark to market.

    S&P Puts Subprime-Backed Debt
    On Notice of Possible Downgrade
    July 10, 2007 12:46 p.m.

    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.)

    S&P said it was taking action because losses on the mortgages underlying these securities have risen more than expected and now exceed anything that happened before.

    Losses will probably increase as the U.S. housing market -- especially parts financed with subprime loans -- continues to decline before it improves, S&P said. Property values will decline 8% on average between 2006 and 2008 and that will exacerbate losses on subprime RMBS, the agency explained.

    The resetting of adjustable-rate subprime mortgages, and the end of low teaser rates on fixed-rate home loans will also increase subprime RMBS losses, S&P added. Tighter underwriting standards imposed by lenders will leave fewer refinancing options for stretched borrowers, the agency also said.

    "The ongoing weakness in both national and regional property markets will exacerbate losses with little prospect for improvement in the near term," the agency said. "Also, many of these transactions will likely encounter additional credit stress from upcoming interest rate and payment resets."