Suits against S&P on mortgage ratings; some say ‘about time’

| Feb 8, 2013 | Foreclosure |

State attorneys general are starting to expand the queue of governments going after Standard & Poor’s, the credit rating service. Texas has not reportedly joined their ranks, but it may only be a matter of time.

The claim by the states and the federal government is that S&P knowingly underplayed the risk of bundled mortgages and that the behavior helped drive the country’s economic collapse. One of the results of that collapse, of course, has been a wave of bankruptcy and foreclosure filings.

According to the various suits filed in the various jurisdictions, regulators accuse S&P of defrauding consumers and investors to the tune of billions of dollars. U.S. Attorney General Eric Holder says specifically that the ratings service lied when it said its ratings were independent and objective. He says that in truth the company knew the derivative mortgage packages were dangerously risky, but wanted to please the selling banks. He says investors were the victims.

Holder announced the action during a news conference earlier this week. A wave of state lawsuit filings has followed.

During the news conference, Holder called the federal suit “an important step” in the effort to hold those players accountable. But the chief economist of Streettalk Advisors in Houston says the action is long overdue and that more regulation at the front end might have gone a long way toward avoiding the crisis.

S&P says it is innocent of all allegations and that it simply made an inaccurate prediction along with a lot of other institutions, including government agencies. But prosecutors say they have sufficient evidence to support their allegations. They include records of communications that go back as far as 2003 when some S&P analysts raised alarms about the ratings methods being used and the accuracy of their conclusions.

Source: USA Today, “Feds: S&P defrauded investors, fueled crisis,” Kevin Johnson and Kevin McCoy, Feb. 5, 2013

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