US Regulators Examine Credit Rating Firms

Sep 7th, 2007 @ 7:24 AM by Alden Smith

My research for the Loan.com blog takes me in a lot of directions. I subscribe to several top newspapers, get Yahoo alerts, and use my unique talents for research to stay on top of the news in the mortgage market today. Because I am not a mortgage broker or have a lot of experience in the loan industry, I can only make my opinions known on the research I do. This is a good thing, because it means my thought process is not slanted towards any one camp. I can offer what I feel is unbiased information to our readership. I am at times uncomfortable with writing about nothing but doom and gloom, but because my role here is to report the news, I have to call it like I see it. Because my news sources are all top of the line, quoting them gives the reader a glimpse of how it is. Rest assured that I always look for good things in the market, too. The issue here is that nothing good seems to be coming from the market lately…

News From the Sub-prime Market

The sub-prime market is still troubling the nation’s economy, with foreclosure seeing all time highs, and people losing their home day by day. The NBC Nightly News with Brian Williams reports that even though the country is aware of this crisis, on the internet these offers for instant credit are still being made to an unsuspecting public. Offers are being made to people with the tagline “poor credit ok”. To me, this practice is throwing gasoline on a fire, yet I see little being done to stop the practice. You have to wonder why in such a highly visible time as we are in with the current market, why these practices are still being allowed.

News From the Feds

US regulators are taking a long look now at credit-rating agencies. Their interest lies in how dependent these agencies are on Wall Street firms that issue bonds amid the crisis in the mortgage market. The regulators want to know why the ratings firms evaluated sub-prime mortgage backed securities that turned into a trillion-dollar market. The U.S. Securities and Exchange Commission is also interested in whether clients that sell more deals and therefore generate more revenue for ratings firms, tend to get better ratings. Although no preferential treatment is evident, the regulators are interested in examining the question because of the lucrative nature of the mortgage market. This makes good sense.

We can only hope that the Fed can sort these things out. A lot of things ride on the outcome of investigations like these. Many feel that lenders will begin to work with borrowers to stop foreclosure on their homes. In foreclosure, no one wins – neither the lender nor borrower. And foreclosure only adds to the glut of homes on the market that do not sell. Let’s hope something good comes from this. It is sad to see so many people losing their homes.