Even after losses from subprime mortgages infected the global economy, S&P continued assigning top grades to pieces of home-loan bonds that were repackaged into new securities called re-remics.
The firm lowered the ratings on 308 classes of such deals in May 2010, cutting to CCC from AAA a $10 million bond created by Credit Suisse Group AG nine months earlier, saying mortgage defaults were turning out to be worse than it forecast. S&P said in December it would need to review 1,196 re-remic securities because it had "incorrectly analyzed" the debt in light of the structure of the underlying deals.
Timeshare Loans
Wyndham Worldwide Corp.'s finance unit may have won higher grades on two of three deals backed by timeshare loans in 2010 and 2011 that S&P said this month it ranked using an "incorrect priority of payments sequence in our analysis." Among the ratings affected were those on $249.7 million of A+ notes. Wyndham added "funds to newly created reserve accounts" to skirt downgrades, S&P said in an Aug. 12 statement.
Billionaire Wilbur Ross's American Home Mortgage Servicing Inc. said in May that it went with S&P and DBRS Inc. to rate a securitization of its advances on homeowners' missed payments and loan-management expenses after Fitch refused to grant AAA grades to $650 million of the deal because of concern that foreclosures are taking longer to complete.
While Fitch criticized that deal, S&P has pointed out flaws in some rated by Moody's. William Harrington, who worked in Moody's derivatives group from 1999 until last year, said in an Aug. 8 letter to the SEC its analysts face management pressure to win business and noted it recently moved to "a market- friendlier methodology" for bonds backed by high-risk company loans.
Moody's said in June that it stopped using a tougher "temporary" approach to looking at the collateralized loan obligations, which it introduced in 2009, because credit conditions are "relatively more stable now and default rates low." Michael Adler, a spokesman, declined to comment.