Subprime mortgage boom and crisis Credit rating agency

the financial crisis inquiry commission has described big 3 rating agencies key players in process of mortgage securitization, providing reassurance of soundness of securities money manager investors no history in mortgage business .

credit rating agencies began issuing ratings mortgage-backed securities (mbs) in mid-1970s. in subsequent years, ratings applied securities backed other types of assets. during first years of twenty-first century, demand highly rated fixed income securities high. growth particularly strong , profitable in structured finance industry during 2001-2006 subprime mortgage boom, , business finance industry accounted of revenue growth @ at least 1 of cras (moody s).

from 2000 2007, moody s rated 45,000 mortgage-related securities triple-a. in contrast 6 (private sector) companies in united states given top rating.

rating agencies more important in rating collateralized debt obligations (cdos). these securities mortgage/asset backed security tranches lower in waterfall of repayment not rated triple-a, whom buyers had found or rest of pool of mortgages , other assets not securitized. rating agencies solved problem rating 70% 80%

of cdo tranches triple-a. still innovative structured product of tranches given high ratings synthetic cdo . cheaper , easier create ordinary cash cdos, paid insurance premium-like payments credit default swap insurance , instead of interest , principal payments house mortgages. if insured or referenced cdos defaulted, investors lost investment, paid out insurance claim.