As home equity tumbles and bad mortgages sink investments, non-profit organizations emerge as one of the most unexpected casualties. Because they rely on the quality of their credit to survive, many non-profits with subprime-related assets are in for a rude awakening.

Investments have become exceedingly sophisticated and complex, so that even investors with a superior knowledge of financial instruments can be stymied when it comes to valuations of today's subprime-laden portfolios. That's part of the reason why companies are reporting humongous write-downs related to the current mortgage crisis. But soon, your favorite charity may be doing likewise, as the spillover from Wall Street leaks into the non-profit sector in unprecedented ways.

Non-profits losing financial backing

These days, losses are being rung up in a big way by non-profit organizations whose financial assets are in jeopardy. We tend to think of non-profits, regardless of how large and well heeled they may be, as relatively innocent compared to the rest of corporate America. They're the generous and kindly ones, not the sharks. But when investors smell blood, they run in fear-and those who invested in the bonds that non-profits rely on for money, are dumping their holdings and causing a calamity of falling values.

Bonds helping hospitals

Many hospitals, for example, issue bonds to help raise money for initiatives like building expansion, or new high-tech operating rooms. Investors buy the bonds in exchange for guaranteed interest payments, and the hospitals use this money to fund ongoing projects. Based on the amount of interest they expect to pay to bond buyers, the hospital makes future plans.

When bond ratings are high-thanks to the good credit rating underlying these instruments-they carry less expensive interest rates. But lately, bond investors, frightened by plunging financial markets, aren't buying. Those that have the courage to bid on bonds expect higher interest rates. Such rates of return give them the financial incentive to assume additional risk, and this year, some non-profits have seen their interest payments jump from four or five percent to 14 or 15 percent. With a double-digit difference, their coffers are getting thin, and bond ratings for those that have less money in the bank are sinking.

Bad credit hurting hospitals

Once their ratings drop, the hospitals have to pay higher interest. This principle applies to institutions just like it does for individuals whose credit histories have been shaky. If your credit score drops, you have to pay more for a personal loan or home equity mortgage. Translate that same idea to a gigantic non-profit organization whose credit is slipping, and it's easy to see why they, too, are suffering from the subprime mortgage meltdown.

Bond insurance is available to cap the rise in interest rates and limit a non-profit's losses. But with so many defaults and risks, many bond insurance companies have themselves gone bust and closed down shop without honoring their policies, adding insult to injury.