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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.

Follow Becket Adams (@BecketAdaams) on Twitter

Featured image courtesy the AP.

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Comments (48)

leary1
Posted on February 5, 2013 at 2:17pm
can we SUE THE GOV. FOR INCOMPETANCE?? HOW ABOUT UNDUE INFLUENCE?? how about MISREPRESENTATION?

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G-WHIZ
Posted on February 5, 2013 at 10:31am
In early 1992, Klinton forced all SAT-TESTS to LOWER THEIR STANDARDS by adding 30POINTS to them to boost the faiures up to average!!

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discus02
Posted on February 5, 2013 at 9:27am
You reap what you sow Obama. The truth will win out.

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702TruthSeeker
Posted on February 4, 2013 at 10:53pm
its funny that this story is getting buried under superbowl commercials, ping pong paddles, and tons of other completely irrelevant stuff. let them eat cake……

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high school drop out
Posted on February 4, 2013 at 10:01pm
Sorry for going off topic abit but, my seeing “Supah” posting here again got me to thinking, Most folks have pretty busy days.. you know ,family friends ,jobs I find that I personally barely have time to come here ,read some stories, and post a comment or two But it seems trolls have unlimited time. My question is..What kind of hugely barren wasteland their lives must be to come here, read every story and post stupid pointless comments designed only to piss us off…what kind of life is that? is it because you crave human contact that badly? Or that you’ve alienated everyone one around you to the point that this is the only way you can get anyone to pay the slightest bit of attention to you?
Whatever it is it’s Pretty Friggin Sad! You trolls are entitled to your beliefs (frankly only hearing one opinion would be boring at best) But coming here just to bust balls is just plain wrong! Do yourself and all of us a favor….GET A LIFE!

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media-bias-steals-elections
Posted on February 4, 2013 at 8:54pm
Riddle me this Batmen?

The same people that gave you the fed, that brought you big social programs, thought you would murder your own children by abortions? And you wonder why you are rated by a credit agency negatively?

Oh stop, that’s just so off topic Republicans? I heard somebody who was apparently told by the big boys to remind us that we can afford our mortgages? So why are you passing health care, if mortgages are so affordable?

You’ve over valued your real estate and you know it, but you can’t admit you have a problem, or even pretend you have a solution by avoiding that admission and simply offering an economic incentive that would be gobbled up by the private sector without mentioning why you are doing it? They are not going to fall for the carbon tax, or the internet ponzi schemes?

Maybe you should ask a creative genius George Lucas to give you a hand without harming anyone? No, we are not going to live in 22 ft apartments, there has to be something better than that? Avoiding the economic distribution problems, especially those caused by regulatory requirements that are avoidable, is like creating a Death Star, just like the movies?

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Bikkiboo
Posted on February 4, 2013 at 7:36pm
Are they going to sue Barney Frank and Fannie & Freddie, etc. for insisting that banks loan money to people who couldn’t afford to borrow? That’s where the problem started: the do-gooders “good deeds” backfired. I hope they got hurt when the bubble broke like the rest of us did, but I doubt it.

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cowboy357
Posted on February 4, 2013 at 7:25pm
Washington’s drunk on spending and O’ s buying…what could possibly go wrong?

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mr.goodvibe
Posted on February 4, 2013 at 7:20pm
Shoot the meesenger! It is his fault there is bad news cause he delivered it.

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