[lbo-talk] S&P is rating subprime mortgages as AAA again -- higher than Treasuries

SA s11131978 at gmail.com
Fri Sep 2 07:48:58 PDT 2011


On 9/2/2011 10:42 AM, SA wrote:


> On 9/2/2011 10:31 AM, Doug Henwood wrote:
>
>> On Sep 2, 2011, at 10:16 AM, SA wrote:
>>
>>> S&P is rating subprime mortgages as AAA again, report Zeke Faux and
>>> Jody Shenn: "Standard& Poor’s is giving 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 assigns the U.S. government. S&P is poised to
>>> provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust
>>> 2011-1, a set of bonds tied to $497 million lent to homeowners with
>>> below-average credit scores and almost no equity in their
>>> properties. New York-based S&P stripped the U.S. of its top rank on
>>> Aug. 5, saying Washington politics were making the country less
>>> creditworthy...S&P has awarded AAAs to more than $36 billion of
>>> securities in the U.S. 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.
>> So are they knaves, idiots, or whores (not to malign whores, of course)?
>
> No idea. Seems hard to understand what the hell they're thinking/doing.
>
> But with respect to the earlier thread - I doubt investors will be
> buying these at risk-free interest rates just because they have a AAA.
>
> SA
>
>

From the article, a Bloomberg piece:


> Bank of America Corp. and Royal Bank of Scotland Group Plc sold $242.7
> million of the Springleaf mortgage bonds today that are set to get
> S&P’s top ratings, according to people familiar with the matter, who
> declined to be identified because the terms haven’t been set.
>
> The transaction was reworked after marketing began to give those
> securities more protection against losses than S&P required, a sign
> investors may not have trusted the grades. An additional $49.7 million
> of the deal ranked AAA that will suffer losses first was split from
> the rest and not sold.
>
> The safer debt was sold at a yield of 4 percent and has a projected
> average life of 2.44 years, one of the people said. That’s about 20
> times the rate demanded on two-year Treasuries.
>



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