Skip to main content

Colorado AG Suthers Takes Legal Action Against S&P Over Bad RMBS

NationalMortgageProfessional.com
Feb 11, 2013

Colorado Attorney General John Suthers has filed a lawsuit against Standard and Poor’s (S&P) in connection with the ratings that it issued on structured finance securities, including residential mortgage backed securities (RMBS) that were issued at the height of the market from 2004-2007. This lawsuit is part of a joint federal-state effort to hold those responsible for their part in the foreclosure and financial crisis. The congressionally-appointed bipartisan Financial Crisis Inquiry Commission concluded in its final report that the financial crisis “could not have happened” without ratings agencies such as S&P. Colorado’s lawsuit alleges that S&P put its financial interests above its self-described objectivity and independence. “This case is part of our ongoing effort to hold culpable parties responsible for the housing foreclosure crisis and protect the integrity of our financial system,” said Suthers. “Standard & Poor’s rating of structured finance securities backed by subprime mortgages was a significant factor in the crisis that occurred. Our complaint alleges that in order to protect their dominant market share, S&P executives compromised their objectivity and independence when rating these securities. Yet, S&P continues to assure the public of their complete objectivity and independence. We allege that this activity is in violation of the Colorado Consumer Protection Act.” Structured finance securities backed by subprime mortgages were at the center of the financial and foreclosure crisis. RMBS and collateral debt obligations (CDOs), derive their value from the monthly payments homeowners make on their mortgages. The complaint alleges that S&P’s made repeated public statements from 2004 – 2012 that emphasized its independence and objectivity. The complaint further alleges that investors and other market participants rely on S&P to be independent and objective when rating these complex financial investments. Many of these investors are pension funds that are required to invest in only highly rated securities. The complaint alleges that S&P adjusted its analytical models for rating RMBS and other structured finance securities to achieve the high ratings that investors needed to invest in these securities. Moreover, the complaint alleges that S&P allowed its own financial motives to influence the ratings model that it used to rate these securities and that S&P’s financial motives compromised the objectivity and independence that it presented to the public. Further, the complaints allege that S&P’s monitoring, or surveillance, of previously rated RMBS and CDOs, was also affected by revenue considerations. In particular, S&P delayed taking rating actions on impaired RMBS and continued rating new CDOs even after it determined that the security’s underlying collateral was impaired, because it wanted to continue to earn lucrative fees. The federal and state lawsuits filed today seek to restore objectivity and integrity to the ratings process. Colorado’s action was filed in Denver District Court and seeks an injunction, civil penalties and disgorgement of ill-gotten profits, which may total hundreds of millions of dollars. The United States Department of Justice filed federal claims in federal court in Los Angeles. The other states filing today include: Arizona, Arkansas, California, Delaware, the District of Columbia, Idaho, Iowa, North Carolina, Maine, Missouri, Pennsylvania, Tennessee, and Washington. Connecticut was the first state to sue S&P on these allegations in March, 2010 and is leading the multistate coalition. The States of Mississippi and Illinois filed lawsuits against S&P in 2011 and 2012, respectively, based on Connecticut’s theory of the case. S&P and its chief competitor, Moody’s Investors Service, Inc. (Moody’s), dominate the market for rating structured finance securities and are responsible for rating virtually all structured finance securities issued into the global capital markets. Connecticut has brought a similar lawsuit against Moody’s, which is pending in state court.
Published
Feb 11, 2013
CFPB Reports Trends In Financial Assistance

The latest developments from this study reveal that most consumers have exited the payment assistance they received at the start of the pandemic.

Analysis and Data
Jul 14, 2021
CFPB Orders GreenSky To Refund $9M In Unauthorized Loans

The consent order requires GreenSky to refund or cancel up to $9 million in loans for the customers harmed by this illegal conduct.

Regulation and Compliance
Jul 13, 2021
CFPB Warns Landlords And Consumer Reporting Agencies To Report Accurate Rental Information

Inaccurate rental or eviction information can unfairly block families and individuals from safe, affordable housing.

Regulation and Compliance
Jul 01, 2021
FHFA Mandates Quarterly Fair Lending Reports

FHFA issued orders for all enterprises to submit quarterly Fair Lending Reports with data and information to improve the FHFA’s capabilities. 

Regulation and Compliance
Jul 01, 2021
FHFA Follows CFPB To Protect Borrowers Once COVID-19 Foreclosure And Eviction Moratoriums End

The Federal Housing Finance Agency made it clear that Fannie Mae and Freddie Mac servicers are not permitted to make first notice or filing for foreclosure that would be prohibited by the CFPB protections for borrowers affected by COVID-19.

Regulation and Compliance
Jun 30, 2021
CFPB Finds Evidence Of Redlining And Deceptive Acts In 2020

Enforcement actions resulted in more than $124 million in consumer remediation and civil money penalties in 2020

Regulation and Compliance
Jun 29, 2021