One of the more startling points Anderson made regarded the growth in US household mortgage debt. His data showed the level of debt grew from $4.49 trillion in the first quarter of 2001 to $9.85 trillion in the first quarter of 2007. That, Anderson noted, means that American have added more household debt in the past six years than they had in the past 224 years combined.
Although most investors would argue that we’re already feeling the full imp
act of the sub-prime crisis, Anderson argues the worst is still to come. His data show that many of the adjustable rate mortgages that were issued in the US in recent years will re-set their rates in late 2007 and 2008. The clear implication is that this will put pressure on borrowers who in many cases are already having trouble meeting their payments.
Anderson did not shy from taking the credit ratings agencies to task for market’s woes. In a slide titled “Ratings Shopping is Alive and Well,” he noted that Moody’s revenue for structured finance ratings has gone from $100 million in 1997 to an estimated $1 billion in 2007, and is now 17% greater than the revenue the firm generates from its traditional bond rating business. Anderson also pointed out that after Moody’s finally toughened its rating guidelines in April 2007, it was excluded from 70% of new commercial mortgage backed-securities—securities worth $25 billion at face value. In other words, the business is worth a lot of money, and the ratings agencies suffer financially if they make it harder for issuers to bring securities to market.
