issuer, through the loan servicer, receives the claim from the FHA for the balance of the loan and other expenses, but has no claim to the sale proceeds—and so in the foreclosure process on an FHA loan, the issuer’s entire exposure is exclusively to the FHA.
Meanwhile, Standard & Poor’s low- ered its ratings to ‘AA+’ from ‘AAA’ on a number of bonds backed by federal leases following the downgrade of the U.S. The lower ratings on the bonds reflect our view that the lease rental payments sup- porting the various bonds, while subject to appropriation, are backed by the full faith and credit of the U.S.
We also lowered our ratings on defeased bonds secured by U.S. Treasury and U.S. agency securities to ‘AA+’ from ‘AAA’. In addition, we low- ered the ratings on several defeased industrial revenue bonds to ‘AA+’ from ‘AAA’ because these bonds rely on investments in U.S. Treasury or agency securities for debt repayment.
States and local governments Given the actions mentioned earlier, it’s important to note that the ratings on state, regional, or local governments can be higher than the sovereign rating if, in Standard & Poor’s opinion, the individual credit characteristics of those governments will remain stronger than those of the sovereign during times of economic or political stress.
A minority of these entities are rated ‘AAA’, based on what we consider to be particularly strong credit characteristics. Beyond analyzing economies in isolation, we have observed that some state or local governments have more favorable bal- ances between resources and responsibili- ties (i.e., they may be less leveraged) than the federal government. We believe that certain state and local governments have historically shown a greater commitment to fiscal discipline or a more resilient local economy, which may be reflected in rat- ings higher than that of the U.S. govern- ment. However, in light of the potential for common economic and credit environ- ments among the U.S. and state and local governments, we expect that in most instances in which states and municipali-
ties have ratings above that of the U.S., the differential will be limited to one notch.
Banks And Insurers Banks rarely have ratings above the sover- eign, given that the industry is more likely than any other to be directly, or indirectly, affected by any sovereign default. This is because of banks’ high leverage compared with nonfinancial corporate borrowers, the volatility of their assets and liabilities in a crisis, their dependence on market sentiment, and their typically large direct exposure to their sovereigns.
Before the U.S. rating downgrade, none of the banks we rate in the U.S. had issuer credit ratings of ‘AAA’ or ‘AA+’. As such, our lowering of the U.S. rating and outlook change to negative had no immediate or direct effect on our ratings on U.S. banks.
Similarly, we consider direct and indi- rect sovereign risks—e.g., the effects of economic volatility and investment- portfolio deterioration—when we assign ratings to insurers, and it would be rare for a U.S. insurer that didn’t benefit from external support to have a rating above the sovereign.
In this light, Standard & Poor’s low- ered to ‘AA+’ from ‘AAA’ its long-term counterparty credit and financial strength ratings on the member companies of five U.S. insurance groups: Knights of Columbus, New York Life Group, Northwestern Mutual Life Insurance Co., Teachers Insurance & Annuity Assoc. of America (TIAA), and United Services Automobile Assoc. (USAA). The outlooks on the ratings on all of these companies are negative. We also lowered our ratings on about $17 billion of securities issued by New York Life, Northwestern Mutual, TIAA, USAA, and their affiliates.
At the same time, we affirmed our ‘AA+’ ratings on the members of five other insurance groups: Assured Guaranty, Berkshire Hathaway Insurance Group, Guardian, Massachusetts Mutual Life Insurance Co., and Western & Southern Financial Group Inc. We also revised our outlooks on these companies to negative from stable.
While our assessment of these compa- nies’ fundamental credit characteristics
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