Attack Won't Damage Credit.

In the wake of the Sept. 11 attack on America, rating agencies and industry economists are beginning to decipher the fallout for the mortgage finance industry.

The good news is that credit quality, in both the residential and commercial sectors of the mortgage business, does not appear to be appear to be damaged, at least not yet.

But an economic recession, which now appears almost certain, could take its toll on the industry.

Rating agencies said there was little immediate impact on the credit quality of investment grade mortgage securities.

There are two reasons for this, according to Standard & Poor's. First, the number of families at risk of default as a direct result of the attack is still relatively small compared to the number of loans in outstanding mortgage securities. (Servicing forbearances and hundreds of millions of dollars of relief assistance will also help.) And MBS transactions are structured to include wide geographic diversity.

Second, neither the mortgage insurance firms nor the bond insurance firms that provide credit support to MBS have been downgraded as a result of the tragedy.

But the prospect of a recession, now more likely than before the attacks, leaves some real estate and MBS sectors vulnerable to deterioration, the rating agencies say. In real estate, S&P has already placed all of the hotel REITS it covers on ratings watch, even while saying the REIT sector overall is well-positioned to manage the aftermath of the attacks.