Folks, this is REALLY REALLY BAD, Wall Street has finally figured out housing is going BUST [View All]

http://www.marketwatch.com/news/story/sp-moodys-signal-growing-subprime/story.aspx?guid=%7BCB3BF07B%2DBCAA%2D4F55%2DAEF5%2DF9C22E5D4570%7D

SAN FRANCISCO (MarketWatch) -- Wall Street's two largest rating agencies signaled on Tuesday that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on U.S. house prices.

Standard & Poor's said it may downgrade $12 billion of subprime residential mortgage-backed securities (RMBS), while rival Moody's Investors Service downgraded 399. S&P also said it's changing the way it evaluates those securities, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to new deals and could affect the ratings of other residential mortgage-backed securities, such as those issued this year, the agency noted.

"This will impact everyone along the food chain," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

The announcements were a dramatic sign that subprime mortgage woes aren't going away and could prolong a downturn in the housing market. If that happens, U.S. economic growth could be hit harder and for longer than expected. Indeed, Home Depot said on Tuesday that a weakening U.S. housing market was affecting earnings more than anticipated just two months ago. See full story.
More specifically, moves by S&P and Moody's on Tuesday could mean that investors with exposure to these securities, and other derivatives linked to them, could face losses. S&P's new approach could also affect subprime mortgage originators and increase interest rates on subprime home loans.