Wednesday, March 02, 2005

Credit Rating Firms Paid By GSEs

In the February 11th GSE Report (see PDF archives), some interesting congressional testimony came out. "Senator Richard Shelby noted that Moodys Investors Services Inc., Standard & Poors, and Fitch have captured 95% of the credit-rating market..(the) credit rating agencies..remain virtually unregulated although they serve as important gate keepers to the debt market..Specifically, he cited two conflicts of interest in the credit rating industry."

"First, the rating companies get the bulk of their revenue from the fees that they charge the entities that they are rating..second conflict of interest is the agencies sale of consultant advisory services to ratings clients, an issue similar to the auditor independence problems that existed prior to the implementation of the Sarbanes-Oxley Act, Shelby suggested."

Don't expect any professional skepticism from the debt ratings firms until the conflict of interest is eliminated. And this lack of objectivity only contributes to the questions swirling around the GSEs.

2 Comments:

At 5:22 PM, Blogger mspenelope said...

Mortgage fraud a factor in Chicago foreclosures
Metro area sees rise in activity
Tuesday, March 01, 2005


Inman News

Chicago, Ill.

The flipping of properties with inflated appraisals and outright fraud on mortgage lenders was a major factor in the persistently high level of foreclosures in the Chicago metro area, Foreclosures.com suggested Monday.

The investment advisory firm saw 1,696 filings to start foreclosure in Cook County in December 2004 and 1,486 in January 2005. Such filings were a mere 650 in December 2004 and 621 in January 2005 for the surrounding suburban counties, Foreclosures.com said.

"In contrast to Cook County, filings in the surrounding suburban counties were down to 650 for December and 621 for January of this year," said Alexis McGee, Fair Oaks, Calif.-based Foreclosures.com's president, in a statement.

According to Assistant U.S. Attorney Kevin Powers, McGee said, a ring of 20 people operating on the south and southwest side of Chicago skimmed $4.4 million through fraudulent deals before being arrested and convicted in 2004.

"Property flipping through inflated appraisals and phony loan documents leads to people winding up owing much more than their homes are worth," said Ms. McGee. "At the first sign of financial trouble, they just walk away, and the lender forecloses and takes a loss."

 
At 6:40 PM, Blogger Ben Jones said...

Hi Ms. P,
There has been so much RE news that I haven't been able to cover the fraud part of this story. It is directly related to the bubble-thanks for posting that...Ben

 

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