No Bottom In Sight for Housing-Related Structured Finance

by: Research Recap November 19, 2008    

Research Recap

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Structured financial products linked to homebuilding and real estate continued to suffer more downgrades than upgrades in the third quarter and the outlook remains dim, according to a Standard & Poor’s quarterly report on rated global structured securities.

Both areas could experience additional stress if housing demand is further constrained by a deeper, more protracted recession and/or continued turmoil within the home lending industry. We will continue to closely monitor homebuilder cash positions and revolver availability, as liquidity remains critical to surviving this downturn.

Downgrades on residential mortgage-backed securities (RMBS) rose in the quarter ended Sept. 30 as monthly delinquencies and foreclosures on the underlying collateral increased, especially for transactions issued between 2005 and 2007, S & P said.

Commercial mortgage-backed securities (CMBS) also took a turn for the worse in the quarter, with four times as many rated CMBS sinking to speculative-grade status.

Among the other trends for the third quarter:

–Asset-backed securities (ABS) saw fewer downgrades in the third quarter, with S & P lowering its ratings on 119 ABS classes, down from a record-high 555 downgrades in the second quarter of 2008.

–Collateralized debt obligations ((CDOs)) were most negatively impacted by the September bankruptcy filing of Lehman Bros. Holdings Inc.

–Downgrades outnumbered upgrades by more than 4.7 to 1 in Europe, with CDOs accounting for the majority of the lowered ratings.

For details, see “Ratings Roundup: Third Quarter 2008 Global Structured Finance Trends.”

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