Standard & Poors, which like BusinessWeek shares the same corporate parent, The McGraw-Hill Cos., just reported its 2005 stats on the mortgage-backed securities market. These are the pools of home loans that get sold on Wall Street to institutional investors and mutual funds. Despite rising interest rates, 2005 was another record-setting year with $2.787 trillion worth of mortgages, sliced, diced and sold on Wall Street. That record issuance was due entirely to originations of riskier loans. The number of new subprime loans reached $465 billion. Issuance of Alt-A loans--those where less income documentation is required--more than doubled to $332 billion. S&P still reports that upgrades in its ratings of these loans exceeded downgrades by nearly ten-to-one. That's good news. But, ominously, 2005 was also a big year for downgrades. Some 150 securities were downgraded last year, up from 69 in 2004. Last year's downgrades were mostly due to performance of those riskiest loans. Lenders' increased willingness to extend a mortgage to just about anyone is beginning to show its dark side.

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