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.
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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.
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The underlying mortgages represent 96.6 percent of the current value of the homes, the issuer estimates. Borrowers may have an incentive to walk away from the debt and leave investors with sizable foreclosure losses should the economy slow further and house prices continue to decline.
The securities were created by Springleaf Finance Corp., a lender to borrowers with risky credit that’s majority owned by private-equity firm Fortress Investment Group LLC and partly by former parent American International Group Inc., according to the people familiar with the offering.
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Underlying loans for the bonds are on average five years old, according to a document sent to investors. Credit scores of the borrowers, none of whom has missed a payment over the past two years, average 651. The U.S. median is 711, according to Fair Isaac Corp., which creates the formulas behind FICO scores.
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Of the $12.8 billion of loans made by the firm over the past decade that are still outstanding, 11.5 percent are 60 days or more delinquent, the term sheet shows. That’s a better track record than rivals, with the rate on subprime mortgages packaged into bonds averaging almost 37 percent, Bloomberg data show.
Ed Sweeney, an S&P spokesman, declined to comment on the Springleaf transaction. “We believe our ultimate success will be driven by the value investors derive from our ratings and analysis,” he said.
You can't make this shit up. Three years ago, the economy was brought to the brink of total meltdown (if you want to argue that the current state is anything dissimilar) in large part because Wall Street turned itself into a giant casino, pimping subprime loans to fuel their cocaine-addled binge on securitizing mortgage backed securities. Their accomplices were the rating agencies, who were (and as the article shows, still are) paid by the banks to issue ratings on these investments in a not-at-all conflict of interest riddled transaction. S&P's parent company, McGraw-Hill, depends on these payments for "27% of its $6.19 billion of 2010 revenues." S&P needs the banksters' business, the banksters need S&P to slap AAA ratings on their shit sandwich securities so they can make giant rips selling these scams to unsuspecting investors as solid investments.
I would go on to discuss how this scenario from the financial crisis differs from current practice, but as the article shows, there is very little daylight between the two. Oh, well Dodd-Frank "tries" to make the banks and ratings agencies less reliant on one another, but an army of bankster lobbyists is presently ensuring that never happens since the law was weak at best and most of its rules have yet to be written or enacted.
So there you have it. To summarize: the ratings agencies and banksters are still up to the same shit that fueled the global financial crisis, there have been no indictments of high-level banksters to date despite the widespread evidence of massive fraud and consumer and investor abuse, and the Obama administration presently wants to settle with the banksters and shield them from all future claims, litigation, and liability.
I think I've ended a number of Wall Street related posts before with a similar tag line, but it bears repeating ad nauseum. The criminals from the biggest organized crime ring of the last 20 years savaged the global economy, caused trillions in losses to households and investors alike, and they walked away scot free. And now they're back to those very same corrupt practices. If you ever needed a prime example of how justice is selectively applied in this country, look no further.
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