Friday, June 29, 2007

The Changing Tone

The Bloomberg story below is nothing new to those of us following the slow-motion calamity that is the mortgage-backed securities market. What I find interesting is the shift in tone (hat tip to Calculated Risk for pointing it out).

Note, there are no weasel words such as "S&P, Moody's may be Hiding Rising Risk..." - they just come flat out and say it. This tone is kept up in the lead paragraph (the most important paragraph in an article) and the punches continue throughout the story.

Are several someones getting nervous out there? Is this another small sign of the changing mood, from delusional optimism to a more realistic anger at the continuing, unfolding ugliness that is the mortgage industry? Or did the author, Mr. Pittman, just not have enough coffee this morning?

S&P, Moody's Hiding Rising Risk on $200 Billion of Mortgage Bonds
by Mark Pittman, Bloomberg

June 29 (Bloomberg) -- Standard & Poor's, Moody's Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans.

The highest default rates on home loans in a decade have reduced prices of some bonds backed by mortgages to people with poor or limited credit by more than 50 cents on the dollar and forced New York-based Bear Stearns Cos. to offer $3.2 billion to bail out a money-losing hedge fund. Almost 65 percent of the bonds in indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold, according to data compiled by Bloomberg.

That may just be the beginning. Downgrades by S&P, Moody's and Fitch would force hundreds of investors to sell holdings, roiling the $800 billion market for securities backed by subprime mortgages and $1 trillion of collateralized debt obligations, the fastest growing part of the financial markets.

I just hope it is only $200 billion...

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