S&P rates Subprime Mortgages higher than the USA
MHP
Standard & Poor’s gives a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it has assigned to the US government debt.
S&P is poised to provide AAA grades to 59% of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497-M lent to homeowners with below-average credit scores, and virtually no equity in their properties.
New York-based S&P took away the US’s Top rank on August 5, saying Washington politics were making the Country less creditworthy.
Treasuries gained about 1.95% and US borrowing costs have fallen to record lows as investors repudiated the downgrade, according to Bank of America Merrill Lynch indexes.
S&P has awarded AAAs to more than $36-B of securities in the US this year that were created by bankers who continue to gather thousands of loans, bundle them into bonds of varying risk and pay ratings firms a fee to assign credit rankings.
Money managers are lending to the government at rates that, in some cases, are about a 3rd of what they demand to hold Top-rated mortgage notes, 4 months after Congressional investigators said S&P helped spur the longest economic contraction since the 1930′s by assigning inflated grades to the bonds from Y’s 2005 through 2008.
More than 14,000 securitized bonds in the US are rated AAA by S&P, backed by everything from houses and malls to auto-dealer loans and farm-equipment leases.
S&P has said it made mistakes in structured finance since the crisis including misunderstanding cash flows and using conflicting methods to analyze the securities. S&P’s parent, New York-based McGraw-Hill Cos.(NYSE:MHP), depended on credit ratings for 27% of its $6.19-B of revenue last year, down from 33% of $6.77-B in Y 2007.
Paul A. Ebeling, Jnr.