SEC looks at rating agencies' credit role

WASHINGTON - Federal regulators said yesterday that they were reviewing the role credit-rating agencies played in the mortgage-market debacle involving borrowers with weak credit.

The Securities and Exchange Commission "has begun a review of credit-rating agency policies and procedures," SEC spokesman John Nester said.

He said the review would include what ratings meant and whether conflicts of interest were created when rating agencies gave advice to issuers of mortgage debt and originators.

Once mortgages are written, they typically are packaged together and sold to investors. Credit agencies rate those mortgage securities for their degree of risk. The number of defaults by homeowners has risen this year, jeopardizing payments on those mortgage investments.

The credit agencies are subject to SEC oversight enacted last year.

Critics say the three biggest ratings agencies - Standard & Poor's Corp., Moody's Investors Service and Fitch Ratings - failed to give investors adequate warning of the risk of mortgage securities containing subprime loans.

The agencies also are vulnerable to conflicts of interest because they are paid by the companies whose bonds they rate, critics say.

A Moody's spokesman said the company would "fully assist" regulators in their examinations. A Fitch spokesman said in an e-mail that the company was cooperating with inquiries from regulators.

S&P was "looking forward to discussing the role of ratings agencies and how we contribute to a healthy capital market," spokesman Chris Atkins said.