Credit rating agencies were spectacularly wrong in the past few years when they tried to assess the worth of mortgage-backed securities.
When thousands of home owners can no longer afford to send in their monthly mortgage payments, all the fancy financial instruments in the world are still going to fail.
The Federal Reserve wants to stimulate more competition among credit rating agencies.
Many critics say that game is corrupt.
The Federal Reserve has been trying all sorts of things to lower interest rates to consumers to restart the housing market and loosen up lending. Despite this, only those with the greatest credit scores and documentable income are getting loans.
WASHINGTON — The Federal Reserve may expand the field of credit ratings agencies that determine the eligibility of securities pledged for loans in a government program aimed at sparking more consumer and business lending.
The Fed on Monday proposed allowing agencies that have registered with the Securities and Exchange Commission and that have experience with the securities being rated.
Doing so “would likely result in an expansion” of ratings agencies – beyond Standard & Poor’s, Moody’s Investors Service and Fitch Ratings – to participate in the Term-Asset-Backed Securities Loan Facility, the Fed said. The proposal aims to promote competition among credit ratings agencies.
The agencies have been blamed for contributing to the worst financial crisis since the 1930s. Critics contend that the agencies didn’t accurately assess risk on the sophisticated mortgage-backed securities at the heart of the crisis. Those investments soured, wracking up huge losses at banks and other financial institutions. The fallout hurt the U.S. financial system and the economy.
Under the TALF program, investors secure loans from the Fed. They use the money to buy securities backed by, among other things, auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration. Securities backed by commercial real-estate loans were recently added to the program.