Assessing Risk on Subprime Mortgage Backed Securities: Did Credit Rating Agencies Misrepresent Risk to Investors?

2011 ◽  
Author(s):  
Harold C. Barnett
Keyword(s):  
Credit Rating ◽  
Credit Rating Agencies ◽  
Subprime Mortgage ◽  
Rating Agencies ◽  
Mortgage Backed Securities

scholarly journals U.S. Sub-Prime Crisis: Origin and Causes

2020 ◽  
Vol 3 (1) ◽  
pp. 24-33
Author(s):  
Sangeeta Sangeeta ◽  
Vinay Chamoli
Keyword(s):  
Global Economy ◽  
Credit Rating ◽  
Home Country ◽  
Mortgage Lending ◽  
Subprime Crisis ◽  
Subprime Mortgage ◽  
Rating Agencies ◽  
Crisis Events ◽  
Mortgage Backed Securities ◽  
Boom And Bust

The purpose of this paper is to explain the boom and bust of the housing market in the U.S. and how the sub-prime mortgages gave birth to new securitized products in the global economy. The majority of the researches conducted previously to explore the reason for the sub-prime crisis and its impact on the volatility on the stock market of the home country (U.S.) and the other developing countries. This paper also contributes to the literature about causes, timeline, and major crisis events during the crisis period. The literature on the Subprime crisis revealed many causes of the Sub-prime crisis. These were Imprudent Mortgage Lending, Housing Bubble, Global Imbalances, Securitization, Lack of Transparency and Accountability in Mortgage Finance, Rating Agencies- The credit rating agencies gave AAA ratings to numerous issues of subprime mortgage-backed securities, many of which were subsequently downgraded to junk status. Deregulatory Legislation, Government-Mandated Sub-prime Lending, Complexity of certain financial instruments, Failure of Risk Management Systems, Excessive Leverage and Relaxed Regulation of Leverage were the most discussed reasons of Subprime Crisis.

CREDIT RATING AGENCIES, THE SUBPRIME MORTGAGE DEBACLE AND GLOBAL GOVERNANCE: THE EU STRIKES BACK

2010 ◽  
Vol 59 (3) ◽  
pp. 701-730 ◽  
Author(s):  
Harry McVea
Keyword(s):  
Global Governance ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Poor Quality ◽  
Credit Rating Agencies ◽  
Subprime Mortgage ◽  
Rating Agencies ◽  
The Global Financial Crisis ◽  
Subprime Mortgage Debacle ◽  
The Eu

AbstractThe global financial crisis has served to highlight serious weaknesses in global governance, revealing fault lines in the international financial architecture and its accompanying regulatory apparatus. Most glaringly, the spotlight has fallen on Credit Rating Agencies (CRAs)—key governance agencies in the pre-crisis domestic and international regulatory structures, and ones directly linked to the subprime mortgage debacle. The aim of this article is to provide a critical appraisal of CRAs as a mechanism of global governance in the light of their role in the subprime mortgage debacle and to evaluate the case for stricter regulation of CRAs. In this respect, special emphasis is placed on the recent EU attempt—by way of a new Regulation on Credit Rating Agencies—to bring rating agencies within the regulatory fold. It is argued that while the EU Regulation has serious implications for the operation of CRAs within the Community, the reform measure is potentially illustrative of a growing dissonance between EU and US responses to global governance issues more generally.‘[Securitisation led to the belief among many that] poor quality assets … assembled as a portfolio … could somehow by alchemy be converted into something stronger than they were’.1‘The crap had become cake.’2‘In January 2008, there were 12 triple A-rated companies in the world. At the same time, there were 64,000 structured finance instruments, like CDO tranches, rated triple A.’3

scholarly journals Information as a condition of justice in financial markets: The regulation of credit-rating agencies

2017 ◽  
Author(s):  
Boudewijn de Bruin
Keyword(s):  
Credit Risk ◽  
Financial Markets ◽  
Institutional Investors ◽  
Credit Rating ◽  
Credit Rating Agencies ◽  
Informational Needs ◽  
Sources Of Information ◽  
Rating Agencies ◽  
Mortgage Backed Securities

This chapter argues for deregulation of the credit-rating market. Credit-rating agencies are supposed to contribute to the informational needs of investors trading bonds. They provide ratings of debt issued by corporations and governments, as well as of structured debt instruments (e.g. mortgage-backed securities). As many academics, regulators, and commentators have pointed out, the ratings of structured instruments turned out to be highly inaccurate, and, as a result, they have argued for tighter regulation of the industry. This chapter shows, however, that the role of credit-rating agencies in achieving justice in finance is not as great as these commentators believe. It therefore argues instead for deregulation. Since the 1930s, lawgivers have unjustifiably elevated the rating agencies into official, legally binding sources of information concerning credit risk, thereby unjustifiably causing many institutional investors to outsource their epistemic responsibilities, that is, their responsibility to investigate credit risk themselves.

scholarly journals Markets: The Credit Rating Agencies

2010 ◽  
Vol 24 (2) ◽  
pp. 211-226 ◽  
Author(s):  
Lawrence J White
Keyword(s):  
Credit Rating ◽  
Credit Rating Agencies ◽  
Bond Markets ◽  
Regulatory Structure ◽  
Information Process ◽  
Subprime Mortgage ◽  
Rating Agencies ◽  
History Of ◽  
Barrier To Entry ◽  
Subprime Mortgage Debacle

This paper will explore how the financial regulatory structure propelled three credit rating agencies—Moody's, Standard & Poor's (S&P), and Fitch—to the center of the U.S. bond markets—and thereby virtually guaranteed that when these rating agencies did make mistakes, these mistakes would have serious consequences for the financial sector. We begin by looking at some relevant history of the industry, including the series of events that led financial regulators to outsource their judgments to the credit rating agencies (by requiring financial institutions to use the specific bond creditworthiness information that was provided by the major rating agencies) and when the credit rating agencies shifted their business model from “investor pays” to “issuer pays.” We then look at how the credit rating industry evolved and how its interaction with regulatory authorities served as a barrier to entry. We then show how these ingredients combined to contribute to the subprime mortgage debacle and associated financial crisis. Finally, we consider two possible routes for public policy with respect to the credit rating industry: One route would tighten the regulation of the rating agencies, while the other route would reduce the required centrality of the rating agencies and thereby open up the bond information process in way that has not been possible since the 1930s.

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