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Attorney General Matt Denn joined the U.S. Department of Justice and 20 other attorneys general in announcing a settlement resolving an investigation into Moody’s Corporation and subsidiaries over the companies’ alleged misrepresentations of mortgages.
Delaware will get nearly $6.8 million in the settlement over rating practices of defaulted mortgages that sent the U.S. economy into a tailspin in 2008-2009.
Rating agencies like Moody’s have long been blamed for contributing to the financial meltdown by giving high ratings to mortgage-backed securities on properties where owners walked away from their loans.
The settlement includes required business reforms by Moody’s and payments totaling $863 million to the federal government and states.
The residential mortgage-backed securities and collateralized debt obligations (CDOs) examined in this investigation are structured finance securities that derive their value from the monthly payments consumers make on their mortgages.
Despite repeated statements emphasizing its independence and objectivity, Moody’s allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients, and assigned inflated credit ratings to toxic assets packaged and sold by the Wall Street investment banks, attorneys general alleged.
This alleged misconduct began as early as 2001 and became particularly acute between 2004 and 2007. The securities, particularly those backed by subprime mortgages, were at the center of the financial crisis. The state does not allege that Moody’s committed any wrongdoing against any individual homeowner on a mortgage.
Delaware’s investigation found evidence that Moody’s deviated from certain of its published methodologies related to its rating of structured finance securities through the end of 2013.
The investigation also found evidence that Moody’s gave in to pressure from big banks, which were powerful, repeat customers that paid Moody’s millions of dollars to rate these securities.
In addition to the monetary settlement, Moody’s has agreed to a detailed statement of facts.
Delaware’s share of the financial component of the settlement is $6,768,533. The release did not specify how the proceeds will be used.
A controversial move two years ago led to the state to use a portion of proceeds from a mortgage settlement to balance the budget.
