Distressed mortgage borrowers seeking help in correcting their financial situation may get some distance in writing their Congressional representative. In mortgage finance, however, financial firms seeking options and clarity on their portfolio of investments may do better in writing to their credit rating agency, or CRA, first. The highly unique relationship between financial firms and the CRAs that measure the risk of their products seems to be as blurry now as it ever was back then, in spite of a historic financial crisis that shook investor confidence to the core. A conversation I had with an exec at PMI Group Inc. [stock PMI][/stock] in early 2008 (before his press relations team sequestered him permanently) had to do with the mitigation of counterparty risk. We both agreed that getting someone to pay out in the case of widespread asset defaults could perhaps be the single most important hedge going forward. Standard & Poor's would likely agree, as its May 27 call for commentary on a proposed modification to counterparty risk and supporting obligations assumptions is ending at the end of this month. (I suppose we can forgive the two-year gap that has since seen the collapse of AIG and Lehman Brothers, as these events underpin the importance of taking an inordinate amount of time to modify ratings criteria correctly. Right?) Despite this, it still feels madly as if we are running out of time. One need only look at rising overnight rates at central banks to see deposits being parked en masse. The money is getting nervous over something, after all. In short: there are sizable loan losses on the horizon, be it massive commercial real estate defaults or issues related to debt-ridden countries in southern Europe, or perhaps even a resumption of downward pressure in residential real estate… the bottom line is that someone is going to have to pay something, one way or another. Not all risks can be hedged away -- the very nature of "hedging counterparty risk" suggests it can be tucked away out of view, when in truth the practice here is probably something closer to a high-stakes game of musical chairs. Inevitably, someone is left without a chair, if and when the music finally stops. Just ask AIG. The positions of the CRAs in this new, post-financial crisis world order make a fascinating case study. And after having their relevance questioned in the wake of mortgage securities collapse, one overarching question yet looms overhead: in the current environment, how much can investors really depend on a counterparty? Whether the CRAs get this answer right or not might very well determine their future. It's already clear that if S&P adopts its new counterparty revisions as proposed, it will have its fair share of market critics. In looking over the revisions, there are some clear negatives in both the structured credit and structured finance space. In particular, S&P anticipates ratings actions (read: downgrades) on up to one-third of outstanding derivative-linked securities. Not exactly a great way to remain popular with your clients. The main change here is the ratings focus shifting towards an assessment of the long-term viability of the counterparty, rather than simply an assessment fitting the duration of the security in question. Before, S&P and other agencies were more interested in a counterparty's ability to handle the short-terms risk of products based upon short-term exposure mitigation. And much like PMI in 2008, the smart money knew that such an assessment wasn't close to sufficient -- but back then, the ratings game was a popularity contest that nobody wanted to lose. That said, the S&P proposal clearly shows at least one attempt to win over the financial market masses. Outstanding securities would get 12 months "to modify their documentation to conform to the new criteria." It's essentially the old argument that Rome wasn't built in a day, being trotted out for the umpteenth time -- but as we have already seen, Bear Stearns collapsed in a weekend. Jacob Gaffney is the editor of HousingWire and HousingWire.com. Write to him.