The subprime storm isn’t blowing over. On July 10, credit-rating agencies Moody’s Investors Service and Standard & Poor’s (like BusinessWeek, a unit of The McGraw-Hill Companies (MHP)) warned of greater-than-expected losses for bonds backed by subprime loans,news that helped send stocks tumbling, BusinessWeek.com reports.
The ratings changes were small. S & P; put $12 billion worth of mortgage-backed securities, just 2.1% of the total issued from late 2005 to late 2006, on watch for downgrades, while Moody’s cut its ratings on just $5.2 billion worth. S & P; also said mortgage fraud is a bigger problem than it had foreseen and that it’s tightening its rating practices.
But what unnerved investors was the idea that there’s still a lot the ratings agencies don’t,and can’t,know. That’s because, from September through next June, a huge number of borrowers, many with subprime mortgages, will see their adjustable interest rates reset at higher levels. Many will default on their loans; the gnawing question is how many.
