Fitch may downgrade securities

As the housing crisis worsen, the likelihood of homeowners defaulting on the mortgage payment increases. In such situation, Fitch Rating may cut its ratings on securities backed by alt-A mortgages. The downgrade will be on $160 billion in such securities. This will eventually involve more writedowns by the financial institution holding such securities.

According to Fitch, 417 residential mortgage-backed securities found themselves in a negative watch list of Fitch. All these securities are backed by alt-A mortgages. Alt-A mortgages are given to people with minor credit problems or people who do not have income proof. Such mortgages have a default risk in between the prime and the subprime mortgages. According to Fitch, the delinquency levels in such mortgages has been increasing and so a move to control them is very much necessary.

This is a move to shift the mortgage backed securities from subprime area to creditworthy areas. Such move is believed to reduce the increasing delinquency levels of the mortgage loans.

The move has already started to show off its effects on other financial institution holding such mortgages. Thornburg Mortgage Inc’s  (TMA) balance sheet had a good hit which made its creditor demand more collateral from the lender. Due to the reducing value of the alt-A mortgages, Carlyle Capital Corp. had to liquidate its assets to meet the margin calls.

Such cases will be common in the time to come. At this troubled tat, everybody is worried about their money. Homeowners already have lesser resources to use to save their houses. In such cases, the financial problem caused by this type of moves may even create more problems for the homeowners.