Moody's Cuts Debt Ratings for Subprime Loans

Credit rating firm Standard & Poor's says it expects more delinquent and defaulted home loans. Moody's lowered ratings on more than $5 billion of subprime-related debt. The moves show that ratings firms were overly optimistic about the housing market, and slow to admit they were wrong.

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JOHN YDSTIE, host:

NPR's business news starts with more hits to the mortgage industry.

Ratings agencies yesterday threatened to downgrade the credit on some $12 billion of bonds backed by subprime home loans. Investors saw it as a sign that the downturn in the nation's housing market is worsening. So stocks tumbled. First, the ratings firm Standard & Poor's announced it expects more delinquent and defaulted home loans. Hours later, Moody's, another rating firm, went even further. It lowered the ratings on more than $5 billion of subprime-related debt.

By keeping ratings high, credit agencies helped fuel the housing boom for people who may not have otherwise qualified for home loans. Yesterday's moves were a tacit admission that ratings firms were overly optimistic about the housing market and were slow to admit they were wrong.

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