Mortgage Bond Ratings Change: "Too Little, Too Late"

Glad to see someone else is paying attention: New York State Attorney General Andrew Cuomo's office has issued subpoenas to S&P, Moody's (MCO) and Fitch -- specifically asking "how much each knew about flaws in the mortgage products that they rated triple-A."

"Andrew Cuomo, New York state's attorney general, wants credit-ratings firms to go further in their efforts to overhaul how they rate mortgage-related bonds, criticizing voluntary changes underway at the firms as "too little, too late."

Moody's Corp.'s Moody's Investors Service, the Standard & Poor's Ratings Services unit of McGraw-Hill Cos. (MHP) and Fimalac SA's Fitch Ratings announced this week separate plans to improve analysis of mortgage-related bonds and other structured-finance vehicles.

Mr. Cuomo called the moves "window dressing" that fall short of the systemic change needed to restore investor confidence. S&P and Moody's "are attempting to make piece-meal change that seem more like public relations window dressing than systemic reform," he said in a statement.

Mr. Cuomo is investigating rating firms to ascertain how culpable they are for assigning ratings that were too high for various bonds backed by subprime mortgages. Collateralized debt obligations that heavily invested in mortgage instruments also were highly rated. Many have since been downgraded, causing billions of dollars in write-offs at financial firms."

In his statement, Mr. Cuomo said his office "will continue its active investigation of the mortgage industry and the role played by the ratings agencies in the mortgage meltdown."

In other words, the NYSAG wants someone to either go to jail, or write a big check.

Source:
Rating the Rating Overhaul
New York State Official Calls Voluntary Moves 'Window Dressing'
AARON LUCCHETTI
WSJ, February 8, 2008
http://online.wsj.com/article/SB120240353266351113.html

Comments

[Sr. Pessimist:]

They were all in on it. Everybody in the industry knew what was going on. "Landscaping Director" was Mortgage for "Gardener."

Here's one I personally just thought of: "Manager of Corporate Relations and Rapport"- Mortgage for "Beggar next to a High Rise."

How about "Personal Assistant"? Mortgage for "Hooker."

And of course nobody in the entire world of mortgage knew a single soul in the ratings agencies, inside the business world or in their personal lives, and nobody affiliated with anybody in the mortgage industry, including friends and relatives, knew anybody or any affiliate of any of the ratings agencies like a mo'fo'.

2008 Feb 08 11:00 PM

[Paolo:]

I believe me previous comment has been a victim of censorship. Perhaps my views that this article is worthless were to strong for the reading community.

Can you honestly put the entire blame of the credit crunch on 3 companies??? What about home buyers' ethics, broker and lender practices, bankers' and investors' due dilegence, and all of the above's knowledge of the macro affects of their practices? Sure, rating agencies contributed, but no more than this article or its author contributes to the vast misrepresentation on the rating industry over the past 9 months.

Position on rating agencies: LONG.
What about the author???

2008 Feb 11 10:42 AM