Now we know who to blame

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(Reuters) Credit rating agencies drew more fire on Wednesday as a powerful U.S. regulator said it was investigating if their judgment had been colored by money from customers selling subprime mortgages.

The rating agencies have been castigated for failing to sufficiently highlight risks in complex financial instruments secured by pools of mortgages, including subprime mortgages for U.S. home-loan borrowers with tainted credit.

"The examination will seek to determine whether the (credit raters') role in the process of bringing residential mortgage-backed securities to market impaired their ability to be impartial," Christopher Cox, chairman of the U.S. Securities and Exchange Commission, told a Senate panel.

 

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NEW YORK, Sept 26 (Reuters) - Moody's Corp's (MCO.N: Quote, Profile, Research) Moody's Investors Service, a ratings agency accused of helping inflate the subprime mortgage bubble, named three new ratings executives on Wednesday and proposed changes in the subprime rating industry.

The moves come amid criticism from lawmakers and investors that rating agencies were not quick enough to highlight problems in the subprime mortgage market.

The U.S. Securities and Exchange Commission is investigating rating agencies, including Moody's and Standard & Poor's, a unit of McGraw-Hill Cos Inc (MHP.N: Quote, Profile, Research), probing areas, including whether the companies were conflicted in giving ratings to issuers of bonds backed by mortgages.

Rating agencies tell banks that bundle subprime mortgages into bonds whether their deals will qualify for particular ratings. That process may be iterative, with banks potentially adjusting proposed mortgage bond structures several times to generate as many top-rated bonds as possible.