U.S. Senate Banking Committee Chairman Christopher Dodd said he'll call credit-rating companies to Capitol Hill this fall to explain why they gave high ratings to subprime-mortgage securities that have plummeted in value.
The companies did ``great damage'' because of their ratings, Dodd, a Connecticut Democrat seeking his party's presidential nomination, said today in an interview with Bloomberg Television in Iowa City, Iowa. ``They've got a lot of explaining to do in my view on why they were giving AAA ratings to securities that never deserved them,'' Dodd said.
Moody's Investors Service, Standard & Poor's and Fitch Ratings, the biggest credit-rating companies, have come under increased scrutiny because their ratings on bonds backed by mortgages held by people with poor or limited credit don't reflect the fastest default rate in a decade.
The Senate Banking Committee has already held a series of hearings to examine lending practices that Dodd and federal regulators say contributed to rising numbers of subprime mortgage foreclosures. Dodd has chided the Federal Reserve and other bank regulators for not doing enough to protect consumers and has pressured them to write new rules restricting deceptive practices.
Dodd said in the interview he wanted to examine the ``special status'' that allows credit rating companies more access than investors to information about public companies.
Moody's (MCO:US) said in June 2006 it had 39 percent of the global credit rating market, second to S&P which had 40 percent. Fitch was the next-biggest company in the field, with a 15 percent market share.
``We look forward to discussing our role in the capital markets to promote better understanding of how rating agencies work,'' said Chris Atkins, a spokesman for Standard & Poor's.
Moody's spokesman Tony Mirenda said the company is ``subject to recurring oversight'' from regulators and lawmakers and will maintain a ``constructive dialogue with policy makers to enhance the overall understanding of the structured-finance market.''
Fitch has been ``actively reviewing'' all of its subprime ratings, company spokesman James Jockle said.
``More than 82 billion AAA ratings from the 2006 vintage of U.S. subprime residential mortgage-backed securities have been affirmed,'' Jockle said.
The companies have been under scrutiny from Congress since 2001, when lawmakers began examining ways to increase competition in the credit-rating industry after Enron Corp. and WorldCom Inc. defaulted on $41.8 billion of debt.
The U.S. Securities and Exchange Commission is implementing stricter rules for regulating the companies passed by Congress last year. The legislation cleared the way for additional credit-rating companies to gain federal recognition in a bid to foster competition for Moody's and Standard & Poor's.
Problems in the subprime market may also be ``spilling over into the prime mortgage area,'' Dodd said. ``If that is the case, this is going to be a much bigger problem.''
To contact the reporters on this story: Alison Vekshin in Washington at email@example.com; Peter Cook in Washington at firstname.lastname@example.org.
To contact the editor responsible for this story: Erik Schatzker at email@example.com.