Standard & Poor's Ratings Services is considering slashing its rating on more than $500 billion of investments tied to bad mortgage loans, the ratings agency said Wednesday.
The massive downgrade would threaten a broad swath of the world's finance industry, S&P said, ranging from Wall Street's trading desks to regional banks to local credit unions.
Ratings from agencies like S&P play a vital role in how much investments are worth. Many funds can only buy investments carrying strong ratings, and some people blame the agencies for granting top-notch credit scores to risky investments during the housing boom.
S&P has downgraded or is considering downgrading $270.1 billion in "mortgage-backed securities," or bonds deriving their payments from home loans. Assuming more people, strapped by the struggling housing market, will not be able to repay their debts, S&P is reviewing 6,389 classes of bonds backed by home loans issued in 2006 and the first half of 2007.