Oct. 17 (Bloomberg) -- Standard & Poor's lowered ratings on $23.4 billion of subprime and Alternative-A mortgage securities that were created as recently as June.

The cut covers 1,713 classes of bonds sold in the first half of 2007, the New York-based ratings company said today in a statement. Some debt with the highest AAA rankings were reduced, S&P said.

S&P's action, in the same year as the securities were created, is its swiftest mass downgrade of mortgage bonds and the first time 2007 bonds have been cut by any company. The cuts follow criticism that the ratings companies gave excessively high assessments of bonds, even as evidence mounted that defaults on subprime loans were rising. Concerns that the housing crisis may deepen escalated this week after Federal Reserve Chairman Ben S. Bernanke said the slump may last through next year.

``I would suspect that this is just the first downgrade,'' said Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. in New York and co-author of a study last month that said ratings companies understate the risks of subprime mortgage bonds.

S&P two days ago reduced ratings on $4.6 billion of subprime bonds from 2005. Moody's Investors Service last week lowered $33.4 billion of securities issued in 2006, and Fitch Ratings a week earlier cut $18.4 billion of debt.

Review

S&P said it is reviewing 646 classes of securities from the same time period and may downgrade the ratings. A decision will be made in the next few weeks, S&P said. Rankings of $245.1 billion of debt were left unchanged, S&P said.

``We review the data every month and circumstances can change,'' Tom Warrack, an S&P managing director, said in an interview. ``Going forward we're going to use a blended approach. We're going to continue to review performance data. But if our overall view of risk has changed significantly as it did here, then we would also employ those updated assumptions as well.''

S&P cut the ratings of 39 classes of its top-rated AAA bonds, amounting to $4.2 billion. That's out of 4,221 classes worth $329 billion that were sold in the first half. AAA bonds in structured finance make up 80 and 90 percent of those issued.

AAA bonds from 2007 that were downgraded today include bonds sold by Merrill Lynch & Co., Goldman Sachs Group Inc., Barclays Capital, Bear Stearns Cos. and RBS Greenwich Capital.

Lax Standards

S&P, Moody's of Moody's Corp. and Fitch, a unit of Paris- based Fimalac SA, were faulted by investors and lawmakers, who said the companies awarded high ratings and failed to predict that lax lending standards may increase the change of home-loan delinquencies.

Defaults on subprime mortgages, given to borrowers with poor credit ratings, reached record highs this year and some securities have dropped by more than 50 cents on the dollar.

Housing starts fell 10.2 percent in September, the Commerce Department said today, and the Mortgage Bankers Association's chief economist warned a decline in lending has ``a ways to go.''

``Standard & Poor's expects that conditions in the U.S. housing market, especially in the subprime sector, will continue to decline before they improve, with home prices remaining under stress,'' S&P analysts led by Scott Mason, Brian Grow and Becky Cao said in the statement.

Criteria Changed

The ratings companies have since changed their criteria to make it tougher to get a high rating on some securities. S&P used its new criteria on the previously issued bonds to decide their new ratings, Warrack said.

Alt-A mortgages are considered a step above subprime because they are made to borrowers with good credit scores who receive more lenient loan terms, such as reduced income documentation or delayed principal repayment.

The cuts were also on second-lien subprime loans, those given for second mortgages.

While 2007 bonds don't have a long payment history, they are already demonstrating similar risks as 2006 securities, S&P said.

S&P is reviewing collateralized debt obligations that contain the securities and said it will decide whether to downgrade the CDOs in the next few days.

S&P's action comes in the wake of efforts by Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. to start an $80 billion fund to buy AAA and AA rated assets from structured investment vehicles. The SIVs otherwise may have to dump $320 billion of holdings such as mortgage securities.

The structure is known as the Master Liquidity Enhancement Conduit, or M-LEC.

``This certainly calls into question the M-LEC's concept of higher-rated assets,'' Rosner said. ``I would suspect fairly confidently that there will be several downgrades for a large portion of these securities.''

To contact the reporter on this story: Mark Pittman in New York at mpittman@bloomberg.net

Last Updated: October 17, 2007 18:18 EDT