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Wednesday, July 18, 2007

Moody's Excluded From Rating 70% of New Commercial Mortgages

" Moody's Investors Service has been excluded from rating 70 percent of new commercial mortgage-backed securities after toughening its guidelines.

Moody's has been shut out of nine of the past 13 deals as underwriters sought better ratings from rival companies, Tad Philipp, a managing director at Moody's said today in a telephone interview. The securities had a face value of more than $25 billion.

"There's no doubt in my mind that it's because of the change'' said Philipp, who included a chapter titled "Rating Shopping is Alive and Well'' in a report released today. "Normally, we'd rate 75 percent of the issues, not 30 percent. I guess this is sort of like, no good deed goes unpunished.''

Moody's, the oldest ratings company, in April increased its requirements for the level of protection carried by bonds backed by mortgages on apartment buildings, offices and other commercial property. That means that to get a higher rating for some pieces of the bond, lower-rated pieces would need to be bigger, reducing losses further up the chain. The changes add to the costs to create the securities. "

So basically if you buy new commercial mortgages that are NOT rated by Moody's, you're running a very high risk of buying crap.

Source: Moody's Excluded From Rating 70% of New Commercial Mortgages (