Creadit rating agencies defend track record before lawmakers amid mortgage mess

WASHINGTON -- Downplaying their role in the mortgage market turmoil, executives from major credit rating agencies today defended their methods for evaluating bonds backed by home loans.

The two rating agencies -- and smaller competitor Fitch Ratings -- are under fire from critics who say they failed to give investors adequate warning of the risk of mortgage-backed securities that are now experiencing soaring defaults.

In testimony prepared for Senate Banking Committee hearing, executives from Standard & Poor's and Moody's Investors Service said their methodology for monitoring the risk of mortgage-backed bonds was sound. But they also pledged improvement.

"We are taking steps to ensure that our ratings, and the assumptions that underlie them, are analytically sound in light of shifting circumstances," said Vickie Tillman, executive vice president of credit market services for S&P, a subsidiary of McGraw-Hill Cos.

But critics, including Democratic and Republican lawmakers and investors in mortgage securities, say the agencies are vulnerable to conflicts of interest because they are paid by the companies whose bonds they rate.

The Securities and Exchange Commission has begun a review of the agencies' practices, including whether conflicts of interest were created if rating agencies gave advice to issuers of mortgage-backed securities.

"We have as yet formed no firm views on any of the reasons put forth by the credit rating agencies, but are carefully looking into each of them," SEC Chairman Christopher Cox said.