SEC looks at ‘influence’ in credit ratings

The SEC is investigating whether issuers and underwriters of residential mortgage-backed securities “unduly influenced” credit-ratings agencies to give them higher ratings than warranted, SEC Chairman Christopher Cox said today at a Senate Banking Committee hearing. The agencies have blamed the unexpectedly large incidence of mortgage delinquencies in the last year on factors including fraud in mortgage originations, deterioration of loan underwriting standards and a faster-than-anticipated adoption of more restrictive lending standards, which made it difficult for overleveraged borrowers to refinance, he said.

“We have as yet formed no firm views on any of the reasons put forth by the credit rating agencies, but we are carefully looking into each of them,” Mr. Cox said, noting that the examination will also look into whether the credit ratings agencies “followed their stated procedures for managing conflicts of interest inherent in the business of determining credit ratings.”