WASHINGTON, DC - An affordable-housing group has called for the Securities and Exchange Commission to investigate whether U.S. credit-rating firms knowingly issued false and misleading ratings on mortgage-backed securities. Fitch Inc., Moody's Investors Service Inc., a unit of Moody's Corp., and Standard & Poor's, a division of McGraw-Hill Cos., are named in a letter to the SEC by the National Community Reinvestment Coalition.
NCRC President and Chief Executive John Taylor said Tuesday that inflated credit ratings have devastated families who have lost their homes to foreclosure. Mr. Taylor blamed conflicts of interest in the ratings business, noting that rating firms are paid by the companies whose securities are being rated.
The Washington-based housing group urged the SEC to examine whether rating firms were "unduly influenced" by securities issuers or underwriters to give inflated ratings to residential mortgage-backed securities. It also called for SEC scrutiny into whether rating firms strayed from their usual standards or defrauded investors, for instance, by failing to consider factors such as mortgage fraud, declining underwriting standards and new loan products for riskier "subprime" borrowers.
The group said the SEC should conduct a public investigation, publicly release its findings and punish any rating firms where appropriate, using its power to censure, fine, or suspend their registration. It also requested that the SEC work with federal bank regulators and the Federal Trade Commission to ensure that consumers receive "appropriate redress" for damages due to "imprudent loan origination and securitization."
SEC spokesman John Nester declined to comment on the letter, but in a statement, he noted that the SEC only recently received authority from Congress to inspect credit rating firms and is "vigorously exercising its new authority" over rating firms.
Source: AllHeadlineNews.com