S&P said near US$1 billion settlement on ratings of US mortgage bonds

New York - Standard & Poor's is close to a settlement of about US$1 billion with the US authorities for allegedly misleading investors about its ratings of mortgage-backed securities before the subprime crisis, Bloomberg News reported on Tuesday.

The US Justice Department has secured settlements worth tens of billions of dollars during the past two years from mortgage lenders and banks it blamed for the 2008 financial crisis. Those companies generated unprecedented amounts of shoddy mortgages that were packaged and sold to investors as securities, many of which turned out to be worthless despite their investment-grade ratings.

S&P, the only credit rater sued by the Justice Department's residential mortgage-backed securities working group, has alleged it was singled out because of its downgrade of U.S. debt in 2011, while its competitors, which issued the same grades for the same securities, weren't sued by the U.S, Bloomberg reported.

The Justice Department alleged that S&P knowingly downplayed the risk on these securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help them sell the instruments. S&P issued credit ratings on more than US$2.8 trillion of residential mortgage-backed securities and about US$1.2 trillion of collateralized-debt obligations from September 2004 to October 2007, according to the Bloomberg report.