S&P under scanner over ratings of mortgage securities leading to financial crisis

The US Justice Department is investigating whether Standard & Poor's, the nation's largest credit ratings agency, improperly rated dozens of mortgage securities in the years leading up to the financial crisis, The New York Times reported citing two people interviewed by the government and another briefed on such interviews.

The report said the investigation was launched before Standard & Poor's cut the US' AAA credit rating this month, and is expected to intensify the controversy surrounding the action. The ratings agency's credibility has recently come under question with critics questioning the agency's secretive process. The competence of its analysts is also under the scanner in the light of an error detected in its debt calculations.

The report citing people in the know of the interviews say, the government wanted to know about instances in which the company's analysts were inclined to give lower ratings on mortgage bonds but may have been overruled by other S&P business managers.

If the government digs up enough evidence, the ratings agency's claim that its analysts act independent of its business concerns would suffer a severe blow with likely legal consequences.

It is not clear whether the department is investigating only S&P and whether the other two ratings agencies, Moody's and Fitch were also being investigated.

During the boom years, S& P and other ratings agencies raked in record profits, rating bundles of troubled mortgage loans at the highest level, which made for lessened risk on the loans in the eyes of investors and thus increased their value. They failed to take into account the deterioration that would set in the housing market and devastate the financial system.