Friday, 26 June 2009

S&P reviewing $235 billion of mortghages backed by commercial real estate

This article raises the specter of more big problems ahead for the Fed's balance sheet.
June 26 (Bloomberg) -- The ratings on $235.2 billion in debt backed by commercial mortgages may be cut by Standard & Poor’s as the ratings company seeks to reflect how the securities would fare in an “extreme economic downturn.”

The possible reductions, disclosed today in a report, follow S&P’s May 26 statement that the ratings of as much as 90 percent of top-ranked commercial mortgage-backed bonds sold in 2007 may be cut because of the changes in how they’re assessed.

If the securities backed by hotels, shopping centers and offices lose their top-ranked status, they’ll be excluded from the Federal Reserve’s $1 trillion Term Asset-Backed Securities Loan Facility, a setback for the government’s efforts to jumpstart lending. S&P expects to finish the review of the debt over the next three to six months, the company said.

S&P wants to be sure that AAA classes can “withstand market conditions commensurate with an extreme economic downturn without defaulting,” analysts including James Palmisano in New York wrote in the report.

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