Thursday, August 18, 2011

Federal investigators probing Standard & Poor's top ratings on mortgage products: report

Thursday, August 18th 2011, 1:06 AM

The Standard & Poor's building on Water St. in New York City.
Carolina Hidalgo for News
The Standard & Poor's building on Water St. in New York City.

Federal investigators are probing if Standard & Poor's wrongly lavished top AAA credit ratings on mortgage products that didn't deserve such high marks at the height of the housing bubble, The New York Times reports.

For years, large financial institutions bundled residential mortgages into complex financial instruments that were then sold to investors looking for a solid and predictable rate of return.

Banks and firms paid rating agencies, like S&P, to slap ratings on the bundled mortgages to make them palatable to investors. In many cases, those products withered in value as the U.S. housing market tanked.

The investigation began before the nation's largest ratings company downgraded the nation's credit grade on Aug. 5.

The Times cited two people interviewed by the Justice Department and a third person with knowledge of those conversations in reporting the probe late Wednesday night.

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