S&P still gives AAA rating to bonds backed by subprime mortgages

September 15, 2011 09:14AM

Standard & Poor’s gave a higher credit rating to a set of bonds tied to homeowners with below average credit and just 3.4 percent of the equity in their homes than it did the United States of America.

Bloomberg News reported that the credit rating agency gave the AAA rating to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a trust with $437 million in mortgage loans. In a document sent to investors the firm said the average credit score of the borrowers is 651, 60 points below the U.S. median, and that the loans represent a total of 96.6 percent of equity in the homes.

Meanwhile, the agency downgraded the U.S., which has the ability to set tax rates and print money, because of quarreling politicians, Bloomberg noted. Judging by treasury gains and U.S. borrowing costs, Bloomberg said investors have largely ignored the downgrade.

Springleaf said none of the borrowers have missed a payment thus far, and the firm has a good track record with these loans as just 11.5 percent of its $12.8 billion issued are delinquent by 60 days or more. And some sources say that although there are still head-scratchers in the S&P grading system, it’s currently far better than it was during the “glory days” in the early 2000s. [Bloomberg News]