Moody's Will Pay $12 Million to Mass.; AG Alleges It 'Helped Push the Housing Market Off a Cliff'

BOSTON, MA – A national credit rating agency is paying $12 million to Massachusetts, resolving pending litigation that alleges it acted deceptively and failed to use accurate and appropriate standards when rating certain securities tied to subprime mortgages, Attorney General Maura Healey said in a press release Tuesday.

According to state and federal allegations, Moody's depicted its ratings practices as independent and objective, but "allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients and assigned credit ratings to risky assets packaged and sold by the Wall Street investment banks that failed to disclose the risks posed by those securities."

Those practices allegedly crossed the line in regard to rating practices for residential mortgage loan securities at the heart of the financial crisis.

“The white-washing of subprime mortgage securities by credit rating agencies helped push the housing market off a cliff," said Massachusetts Attorney General Healey, who joined the pending civil suit against Moody's with the Department of Justice, 21 other states and the District of Columbia.

As part of a more than $800 million agreement resolving those allegations, Massachusetts will receive $12 million, the AG's office said.

Healey's office and others involved in an investigation into the agency's practices allege that "Moody’s allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients and assigned credit ratings to risky assets packaged and sold by the Wall Street investment banks that failed to disclose the risks posed by those securities."

In its statement on the agreement, Moody's said:

"After careful consideration, Moody’s determined that the agreement, which removes significant legacy legal risk and avoids costs and uncertainty associated with continued investigations and litigations, is in the best interest of the company and its shareholders. Moody’s stands behind the integrity of its ratings, methodologies and processes, and the settlement contains no finding of any violation of law, nor any admission of liability."

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