State Attorney General Andrew Cuomo announced today at a press conference his plan to reform the residential mortgage-backed securities market by increasing credit rate agencies’ independence and providing more information to the public.
The reforms follow harsh criticism for the ratings agencies, which have been blamed for accelerating the mortgage meltdown by giving high ratings to subprime mortgage-backed securities.
Investment banks often shop around for a credit agency that will give them the best rating. The plan includes reforming fees so credit agencies are compensated regardless if they are selected, with the goal of taking the pressure off agencies to give banks ratings that will get them a commission. Credit agencies will disclose all securitizations submitted for their review, making it clear which investors decided to use or not use certain ratings.
Agencies will also develop criteria for information collected by investment banks, which will be available on their Websites.
“By increasing the independence of the rating agencies, ensuring they get adequate information to make their ratings, and increasing industry-wide transparency, these reforms will address one of the central causes of [the mortgage crisis],” Cuomo said.
Cuomo was joined by leaders of three principal rating agencies: Deven Sharma, president of Standard and Poor’s, Stephen Joynt, president and CEO of Fitch Ratings, and Michel Madelain, COO of Moody’s Investors Service. They will sign an agreement today to cooperate with Cuomo’s ongoing investigation, which began more than a year ago.