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Feds Plan to Sue Credit Ratings Agency Over Its Mortgage Ratings

Feb. 4, 2013 4:47pm Becket Adams

U.S. to Sue S&P For Pre Financial Crisis Ratings

Standard & Poor’s headquarters in the financial district of New York on August 6, 2011. The United States’ credit rating was cut for the first time ever August 5 when Standard and Poor’s lowered it from triple-A to AA+, citing the country’s looming deficit burden and weak policy-making process. (Photo credit should read STAN HONDA/AFP/Getty Images)

WASHINGTON (TheBlaze/AP) — Standard & Poor’s says the government plans to file a civil lawsuit alleging wrongdoing by the agency when it gave high ratings to mortgage debt securities that later plunged in value and fueled the 2008 financial crisis.

S&P said Monday that it has been told by the Justice Department that it intends to file a civil lawsuit focusing on S&P’s ratings on some mortgage debt securities in 2007. A suit would mark the first enforcement action by the federal government against a major rating agency over the issue.

The big rating agency denies any wrongdoing and says any lawsuit would be without factual or legal merit.

A suit would “disregard” the fact that S&P reviewed the same data on risky mortgages as the rest of the market and U.S. government officials, who publicly said in 2007 that the problems in the subprime mortgage market appeared to be limited, the company said.

For example:

In a statement, S&P said it “deeply regrets” that its ratings on the securities “failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market during that tumultuous time.” However, the company said, it took “extensive” rating actions in 2007, before other rating agencies, on the mortgage-backed securities that were included in a mix of mortgage securities.

The agency also maintains that its opinions/ratings are protected under the First Amendment.

Justice Department spokeswoman Nanda Chitre declined to comment on the matter.

Critics say rating agencies have an inherent conflict of interest: They’re paid by the companies whose products and credit they rate. The agencies have been accused of issuing unduly high ratings before the crisis because of pressure from banks they wanted as clients.

Final Thought – Consider the following (from the Wall Street Journal):

Many details of the looming enforcement action couldn’t be immediately determined, such as why prosecutors are zeroing in on S&P rather than rivals Moody’s Corp. and Fitch Ratings …

All three credit-rating firms have faced intense criticism from lawmakers for giving allegedly overly rosy ratings to thousands of subprime-mortgage bonds before the housing market collapsed.

For what it’s worth, one thing that sets S&P apart from Moody’s and Fitch is the fact that S&P downgraded the U.S.’ credit rating on August 5, 2011. Both Moody’s and Fitch maintain a “AAA” rating for the U.S.

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Featured image courtesy the AP.

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Comments (48)

Hugie 59 PA
Posted on February 4, 2013 at 7:19pm
Obama’s way of getting raters to toe the line. He is a a threat to anyone who has a different point of view. A threat to punish them using his presidential powers. S&T is applying standard criteria to evaluate the country’s rating. His policies are the cause of our declining ratings.

defined – “toe the line” accept the authority, principles, or policies of a particular group, esp. under pressure.

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freedomcatcher
Posted on February 4, 2013 at 7:18pm
The activities of the credit reporting agencies are fudametally unethical, and generally irrelevant. Get rid of them and things would get better for everyone.

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right field
Posted on February 4, 2013 at 7:07pm
Banana Democracy – Viva Obama and Long Live the Marxist Idiots from both political parties!
‘Fielding Mellish’Obama – http://youtu.be/sYp9WtbMo2k

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term limits for congress
Posted on February 4, 2013 at 6:55pm
If they had given lower ratings to mortgage debt securities, Bawney Frank and Maxine Waters would have been screaming racism. Damned if you do. Damned if you don’t.

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- KalanVA
  Posted on February 5, 2013 at 8:27am
  I agree with your name. Term Limits for Congress and a Third Party to clean up the mess from both parties.
  
  Report this comment
enigmaman
Posted on February 4, 2013 at 6:37pm
Moodys is safe largely owned by Obama buddy W Buffet,

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dumpsterdog
Posted on February 4, 2013 at 6:04pm
Proves that you don’t cross “The Mob”. The S&P should have given this failure of a government an A+++ so that the employees wouldn’t be threatened.

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CWPrequired
Posted on February 4, 2013 at 6:02pm
Just a shot over the bow to S&P telling them not to downgrade us again because of the debt ceiling. If they don’t give us another downgrade, we know it worked.

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rickroland
Posted on February 4, 2013 at 5:56pm
“Enforcement action” — more like “It appears that you have put out information that does not put the State in the proper light. As a result, you will need to be “corrected” on the matter. Understand?”

Tyranny from the State, no two ways about it.

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- Jenny Lind
  Posted on February 4, 2013 at 6:10pm
  And they get bolder everyday in payback if you aren’t on “their” side.
  
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RaydocX
Posted on February 4, 2013 at 5:46pm
So, having funneled billions of dollars to favored banks and businesses, it’s time to help out some of the lawyers…

more of our tax dollars will be spent arguing about the ratings of our credit instead of taking steps to address why our credit rating has been impacted… that sounds like a typical Democratic approach to the problem… don’t face the problem, name it something else, throw money at a solution that won’t work, and pretend something positive is being done.

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702TruthSeeker
Posted on February 4, 2013 at 5:43pm
again, there is no risk of the US losing the AAA credit rating. Do they know who they’re dealing with? We are going to get that credit rating back the Chicago way!!!

http://www.youtube.com/watch?v=KlQaKRvxInM

These guys don’t realize that the thug in chief will do whatever he can (including threaten lawsuits) to keep up good appearances

Watch, the lawsuits will be dropped and our rating will magically come back to AAA… hahahahahaha we’re screwed…

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Fubared
Posted on February 4, 2013 at 5:26pm
http://www.zerohedge.com/news/2013-02-04/treasury-forecasts-16763-trillion-debt-march-31-105-debtgdp

105% of gdp seems like the EBT cards will read 0 by design.

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quiltgal
Posted on February 4, 2013 at 5:25pm
The government sanctioned, and some would say demanded, these risky mortgages. The government should sue itself or be sued.

Not suing Moody’s and Fitch as well? Well, now we know what two ratings agency are in bed with the government.

It’s very creepy that any credit rating firms “have faced intense criticism from lawmakers” because those same lawmakers are simply passing the buck onto the private sector for their profound mistakes. I’m so disgusted with the the stupidity and corruption of the liberals in Washington. I hope the new faces like Senator Pat Toomey, whose honesty and good leadership I totally admire, will be able to pull us out of D.C.’s culture of corruption. Go conservative freshman senators!!!

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woodyee
Posted on February 4, 2013 at 5:23pm
Watch out for some kind of move by Obammy to ‘regulate’ or ‘temporarily’ run operations at S+P.

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jakartaman
Posted on February 4, 2013 at 5:16pm
I hope S&P tells them to fly a kite and don’t get intimidated by these thugs!

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SandyfromChesterfield
Posted on February 4, 2013 at 5:10pm
Maybe they should talk to Barney Frank and Governor Cuomo first.

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ReallySeriouslyNoWay
Posted on February 4, 2013 at 5:07pm
I guess better late than never, Seems like this is the kind of lawsuit you’d see filed in 2009 and not 2013. I guess the Justice Department has been too busy suing Arizona over immigration laws, defending Obamacare and ignoring things like Fast and Furious and the Black Panthers.

Can anyone explain why none of the guys who brought down the whole financial system aren’t in jail alongside Bernie Madoff? Maybe the statue of limitations isn’t up on that stuff and they are next. That would be awesome. But unlikely.

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- Cavallo
  Posted on February 4, 2013 at 5:16pm
  You have to prove collusion, fraud, and foreknowledge. You can’t put people in jail for just being dumb on investments, or you’d have to lock up half the country. They’re suing over the financial meltdown, but in reality it is revenge for downgrading the US bonds. The thing is that real estate has always been a safe investment. Historically only 2% of home loans go into default (pre 2008). A 98% chance that you’re going to get back your money PLUS interest is one hell of a good bet. The Government is going to have a hard case to sell, unless they drop it into some kangaroo court. This is also an intimidation tactic to the OTHER credit firms.. “Don’t downgrade the feds if you want to stay out of court, capiche?!”
  
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- woodyee
  Posted on February 4, 2013 at 5:21pm
  “Can anyone explain why none of the guys who brought down the whole financial system aren’t in jail alongside Bernie Madoff?”
  
  You mean like, erah, financial rule makers Chris Dodd and Barney Frank? Erah, just for starters – http://www.rawstory.com/rs/2011/10/11/gingrich-says-chris-dodd-and-barney-frank-should-be-jailed/
  
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RoDogg
Posted on February 4, 2013 at 5:04pm
Yeah well …. does that mean we can sue the fed for downgrading the value of our dollar??? lol

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Outlaw_Josey_Wales
Posted on February 4, 2013 at 5:03pm
Standard & Poor’s should downgrade the U.S. to junk bond.

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- Cavallo
  Posted on February 4, 2013 at 5:17pm
  Just watch the panic when China stops buying them.
  
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RANGER1965
Posted on February 4, 2013 at 5:02pm
Let me sum up.

“You wanna know how to get your enemy? They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. *That’s* the *Chicago* way!

Or the Barrack Obama way.

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TarheelFlyer
Posted on February 4, 2013 at 5:00pm
That is what this looks like.

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SquidVetOhio
Posted on February 4, 2013 at 5:00pm
Funny how they waited until AFTER the election to pull these thug tactics.

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KalanVA
Posted on February 4, 2013 at 4:58pm
As taxpayers, we should be able to sue our government for failure to run the government within a budget and mismanagement of funds by funneling taxpayer money to their own pockets in the form of earmarks.

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mattva1981
Posted on February 4, 2013 at 4:55pm
Correct me if I’m wrong, but wouldn’t this be the same thing as me suing Experian or TransUnion for giving me a poor FICO score?

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- KalanVA
  Posted on February 4, 2013 at 4:59pm
  Exactly
  
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Supah_Patriot
Posted on February 4, 2013 at 4:52pm
Thanks for the downgrade, Tea Guys!

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- justangry
  Posted on February 4, 2013 at 4:54pm
  Blame Keynesian warmongers. They run your party too.
  
  Report this comment
- VanGrungy
  Posted on February 4, 2013 at 4:59pm
  it couldn’t be the deficit and debt, nah…
  
  Report this comment
- SquidVetOhio
  Posted on February 4, 2013 at 4:59pm
  You’re understanding of history or the willing attempt to re-write it is laughable and I’m calling you out on it.
  
  Bush tried to reform the sub-prime mortgage practice started originally by Jimmy Carter and expanded by Clinton in the 90′s. Barney Frank and Chris Dodd assured us that it was working fine and the Fannie and Freddy was not at any kind of financial risk.
  
  Google it…
  
  Report this comment
- UNALIEN
  Posted on February 4, 2013 at 5:04pm
  SUPAH_PATRIOT
  Posted on February 4, 2013 at 4:52pm
  Thanks for the downgrade, Tea Guys!
  ———-
  
  WHA?
  
  Report this comment
- WillG
  Posted on February 4, 2013 at 5:10pm
  Yeah what Squid said.
  
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- 13th Imam
  Posted on February 4, 2013 at 5:18pm
  Projection.
  
  A cup of TEA would be nice. Mind fetching me one, Suppa?
  
  Report this comment
- Zipit
  Posted on February 4, 2013 at 5:29pm
  I’m having some tea at this very moment! Laughing at idiots like Supah!
  
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- Fubared
  Posted on February 4, 2013 at 5:37pm
  http://www.zerohedge.com/news/2013-02-04/civil-charges-be-filed-against-sp-its-pre-cisis-rating-mortgage-bonds
  
  Report this comment
UNALIEN
Posted on February 4, 2013 at 4:52pm
Don’t criticize the State or you will be punished…

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