- The Washington Times - Thursday, January 31, 2008

NEW YORK (AP) — Standard & Poor’s Ratings Services is considering slashing its rating on more than $500 billion of investments tied to bad mortgage loans, the ratings agency said yesterday.

The massive downgrade would threaten a broad swath of the world’s finance industry, S&P; said, ranging from Wall Street’s trading desks, to regional banks, to local credit unions.

Ratings from agencies such as S&P; play a vital role in how much investments are worth. Many funds can only buy investments carrying strong ratings, and some people blame the agencies for granting top-notch credit scores to risky investments during the housing boom.

S&P; has downgraded or is considering downgrading $270.1 billion in mortgage-backed securities, or bonds deriving their payments from home loans. Assuming more people will not be able to repay their debts, S&P; is reviewing 6,389 classes of bonds backed by home loans issued in 2006 and the first half of 2007.

The 238-page list of bonds considered for downgrade includes transactions involving virtually all the major investment banks, including Citigroup Inc., Lehman Brothers Holdings Inc., Bear Stearns Cos. and Merrill Lynch & Co.

The bonds considered for downgrade represent nearly half the bonds of that kind sold between January 2006 and June 2007, S&P; said.

The ratings agency also downgraded or is considering a downgrade of $263.9 billion of collateralized-debt obligations, which are complicated securities splicing payments from a number of different sources, including mortgage-backed bonds.

S&P; acknowledged the potential for these downgrades to ripple throughout the world of banking and finance. Banks already have posted $90 billion in losses on these types of mortgage investments, and S&P; expects losses to reach $265 billion.

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