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S&P said to face U.S. probe on mortgages

NEW YORK (CNNMoney) — Rating agency Standard & Poor’s is being investigated by the U.S. Justice Department for allegedly overrating mortgage-backed securities, whose meltdown led to the 2008 financial crisis, according to a report published Thursday.

In particular, The New York Times said the government was looking into whether analysts for S&P, a unit of McGraw Hill Co., (MHP, Fortune 500) wanted to give lower ratings to the mortgage securities, but were overruled by business managers. S&P, like other ratings agencies, collects fees from issuers for rating securities.

The Justice Department declined to comment to CNN regarding the reported investigation. S&P did not immediately return comment to CNNMoney.

The report also said the Securities and Exchange Commission is also investigating the rating agencies — including S&P, Moody’s Corp. (MCO) and Fitch Ratings — concerning mortgage securities. SEC officials had no comment to CNNMoney.

Concerns that ratings agencies overrated mortgage securities have been voiced ever since the financial crisis. But the situation is complicated politically by the fact that the report comes nearly two weeks after S&P downgraded the credit rating of U.S. debt, stripping the world’s largest economy of its prized AAA status.

The downgrade followed Congressional squabbling over raising the debt ceiling, and the rating agency highlight the lack of a “credible” plan to tackle long-term debt.

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In May, the Justice Department sued Deutsche Bank (DB) for $1 billion, claiming that its MortgageIT unit made tens of thousands of bad loans and then duped the Federal Housing Authority into insuring them. The scheme left taxpayers with the hundreds of millions of dollars in sketchy loans, according to the government.


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