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Report: S&P faces further scrutiny on mortgage bond ratings

Justice Department officials are pushing further into an investigation of whether ratings giant Standard & Poor's sidestepped its own criteria when assigning AAA ratings to mortgage bonds in the years leading up to the financial meltdown, the Wall Street Journal said Tuesday. The probe was known as early as last summer and highlights S&P's role in the months leading up to the 2008 financial crisis. The WSJ says five former S&P analysts have been contacted as part of the inquiry into the ratings giant's actions. Justice Department officials are pushing further into an investigation of whether ratings giant Standard & Poor's sidestepped its own criteria when assigning AAA ratings to mortgage bonds in the years leading up to the financial meltdown, the Wall Street Journal said Tuesday. The probe was known as early as last summer and highlights S&P's role in the months leading up to the 2008 financial crisis. The WSJ says five former S&P analysts have been contacted as part of the inquiry into the ratings giant's actions. S&P and other credit ratings agencies, including Moody's Investors Service, faced severe criticism in the wake of the mortgage market crisis for assigning AAA ratings and then quickly downgrading them on credit quality. A bipartisan Senate study released in 2011 blamed S&P for introducing "inaccurate AAA credit ratings" into the financial system. The Senate bipartisan committee report claimed the massive downgrades made by the credit ratings agencies a few months before the financial meltdown "precipitated the collapse of the residential mortgage backed-securities and CDO secondary markets" since the changes were "unprecedented in number and scope." The report added that "more than any other single event (the downgrades) triggered the beginning of the financial crisis." In the past, S&P has said its U.S. RMBS and CDO downgrades were accurate in reflecting deterioration in credit quality, but were not the cause of it. The Wall Street Journal report suggests S&P catered its ratings to the benefit of clients, while ignoring the actual underwriting quality tied to certain mortgage bonds. Write to Kerri Panchuk.

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