65 percent of the bonds don't meet the S&P ratings criteria

S&P May Cut $12 Billion of Subprime Mortgage Bonds (Update6)

July 10 2007 (Bloomberg) -- Standard & Poor's said it may cut the credit ratings on $12 billion of bonds backed by subprime mortgages, prompting investors to dump the securities.

S&P is preparing to lower the ratings on 2.1 percent of the $565.3 billion of subprime bonds issued from late 2005 through 2006 because the housing slump is worse than the company anticipated. The announcement sent U.S. government bonds higher, the dollar lower and caused shares of financial companies to drop.

Lehman Brothers Holdings Inc., this year's biggest U.S. underwriter of mortgage bonds, led declines among securities firms with a 4.6 percent drop. Bear Stearns Cos., No. 2 in mortgage-backed securitizations, fell 3.5 percent. Both firms are based in New York.

Almost 65 percent of the bonds in indexes that track subprime mortgage debt don't meet the S&P ratings criteria that were in place when they were sold, according to data compiled by Bloomberg.

July 10, 2007