The second largest credit-rating agency, Moody’s, has agreed to pay $864 million. The money is going toward the settling of federal and state claims of inflated mortgage investments. Moody’s admits it did not meet its own standards when it came to rating security risks baking home mortgages and collateral debts.
The deal made on Friday was with the Justice Department and the attorney general of twelve states and the District of Columbia. Moody’s pays $437.5 million to the Justice Department, and the other $426.3 is divided among the states.
Moody’s, Standard & Poor’s, and Fitch received heavy criticism for low-risk ratings and faulty mortgage securities. However, while the company sold low ratings and mortgage securities that weren’t up to par, they managed to reap the benefits of lucrative fees. Standard & Poor’s made a similar deal with nineteen states and the Justice Department for $1.4 billion.
Moody’s confessed that its rather loose standards for specific financial products. This drifted to many banks all over the world which led to financial collapse in 2008. The collapse led the largest recession in the U.S.
According to the settlement, Moody’s agrees to change the methods it currently uses for its ratings. It will also make sure that its employees receive no compensations based on company performance.
In a statement, the company confirmed, “As part of the resolution, Moody’s has agreed to maintain, for the next five years, a number of existing compliance measures and to implement and maintain certain additional measures over the same period.”
