Role of credit-rating firms in mortgage crash scrutinized

Federal regulators said Friday that they were reviewing the role credit-rating firms played in the mortgage market debacle for 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.

The review, he said, will include what ratings mean and whether conflicts of interest were created when the firms gave advice to issuers of mortgage debt and originators.

The firms, whose ratings are used by investors to gauge the riskiness or safety of mortgage-backed bonds and other forms of debt, are subject to SEC oversight enacted last year.

Critics say the three biggest rating companies -- Standard & Poor’s, Moody’s Investors Service and Fitch Ratings -- failed to adequately warn investors of the risk of mortgage securities containing sub-prime loans.

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

A Moody’s spokesman said the company would “fully assist” regulators in their examinations. A Fitch spokesman said the company was cooperating with inquiries from regulators, including a subpoena from New York Atty. Gen. Andrew Cuomo.

S&P;, which also received a subpoena from Cuomo, said it would cooperate in the inquiry.