Post by unlawflcombatnt on May 8, 2007 11:55:02 GMT -6
Below is an excerpt from a Bloomberg article posted by Patrick.net titled Moody's, S&P Understate Subprime Risk, Study Says. The author is Mark Pittman. The article discusses how the rating of bonds by the rating agencies, especially those of subprime mortgage backed securities, has been underestimated.
"May 3 (Bloomberg) -- Moody's Investors Service, Standard & Poor's and Fitch Ratings understate the risks of subprime mortgage bonds, putting funding for the U.S. housing industry at risk, according to a study to be released today.
The ratings companies can't evaluate the probability of losses because home loans that back the debt have constantly changing underwriting standards, according to the study by Joshua Rosner, a managing director of investment research firm Graham Fisher & Co. in New York, and Joseph R. Mason, an associate finance professor at Drexel University in Philadelphia.
S&P, Moody's and Fitch are also not impartial examiners of credit because they help design the securities, according to Rosner and Mason. Their 84-page study, ``Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions,'' is to be presented today at the Hudson Institute in Washington.
``The senior levels of these structures are probably not as safe and secure as the ratings companies have said, as investors would assume, or as regulators are counting on,'' Rosner said in an interview. Whether top-rated classes of such securities are downgraded ``depends on home price appreciation. It's a strong possibility that there could be downgrades.''...
Subprime mortgage bond prices are falling as late payment by borrowers with poor credit, reached a four-year high of 13.3 in the fourth quarter, according to the Mortgage Bankers Association trade group in Washington. Losses may exceed a record set in 2000 of about 6 percent, according to New York-based Moody's....
Mortgage bonds are traded ``over the counter,'' the report said, so there's no transparency for bond prices, making ``the rating the chief mechanism of monitoring and evaluating risk.''...
S&P, Moody's and Fitch are beginning to cut ratings. On April 30, S&P either cut credit ranks or put on watch for downgrade a record 253 of bonds backed by U.S. mortgages in the first quarter. Thirty-five of those with ratings actions were from 2006.
U.S. foreclosure filings in the first quarter of 2007 surged by more than a third over the same period last year as late payments on subprime mortgages climbed, research company RealtyTrac Inc. said. Almost 437,500 (foreclosure) filings were reported, up 35 percent from the first three months of 2006...."
The full article can be found at
Moody's, S&P Understate Subprime Risk, Study Says
"May 3 (Bloomberg) -- Moody's Investors Service, Standard & Poor's and Fitch Ratings understate the risks of subprime mortgage bonds, putting funding for the U.S. housing industry at risk, according to a study to be released today.
The ratings companies can't evaluate the probability of losses because home loans that back the debt have constantly changing underwriting standards, according to the study by Joshua Rosner, a managing director of investment research firm Graham Fisher & Co. in New York, and Joseph R. Mason, an associate finance professor at Drexel University in Philadelphia.
S&P, Moody's and Fitch are also not impartial examiners of credit because they help design the securities, according to Rosner and Mason. Their 84-page study, ``Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions,'' is to be presented today at the Hudson Institute in Washington.
``The senior levels of these structures are probably not as safe and secure as the ratings companies have said, as investors would assume, or as regulators are counting on,'' Rosner said in an interview. Whether top-rated classes of such securities are downgraded ``depends on home price appreciation. It's a strong possibility that there could be downgrades.''...
Subprime mortgage bond prices are falling as late payment by borrowers with poor credit, reached a four-year high of 13.3 in the fourth quarter, according to the Mortgage Bankers Association trade group in Washington. Losses may exceed a record set in 2000 of about 6 percent, according to New York-based Moody's....
Mortgage bonds are traded ``over the counter,'' the report said, so there's no transparency for bond prices, making ``the rating the chief mechanism of monitoring and evaluating risk.''...
S&P, Moody's and Fitch are beginning to cut ratings. On April 30, S&P either cut credit ranks or put on watch for downgrade a record 253 of bonds backed by U.S. mortgages in the first quarter. Thirty-five of those with ratings actions were from 2006.
U.S. foreclosure filings in the first quarter of 2007 surged by more than a third over the same period last year as late payments on subprime mortgages climbed, research company RealtyTrac Inc. said. Almost 437,500 (foreclosure) filings were reported, up 35 percent from the first three months of 2006...."
The full article can be found at
Moody's, S&P Understate Subprime Risk, Study Says