John De Luca & Paul Russo 
Credit Rating Agency Reform 

This book discusses the three amendments that the SEC Commission is proposing that would impose additional requirements on nationally recognized statistical rating organizations ("NRSROs") in order to address concerns about the integrity of their credit rating procedures in the light of the role they played in determining credit ratings for securities collateralized by or linked to subprime residential mortgages. The Commission today makes a proposal related to structured finance products rating symbology. Thirdly, this book discusses the rule amendments that the Commission intends to propose that would be intended to reduce undue reliance in the Commission’s rules on NRSRO ratings.In August 2007, the Securities and Exchange Commission’s Staff initiated examinations of three credit rating agencies, to review their role in the recent turmoil in the subprime mortgage-related securities markets. The purpose of the examinations was to develop an understanding of the practices of the rating agencies surrounding the rating of RMBS and CDOs. This book includes a summary report by the Commission’s Staff of the issues identified in those examinations.Finally, an overview of the subprime mortgage securitization process is provided as well as the seven key informational frictions that arise. Ways that market participants work to minimize these frictions is discussed and how this process broke down is speculated. Key structural features of a typical subprime securitization is presented, and how rating agencies assign credit ratings to mortgage-backed securities is documented. How these agencies monitor the performance of mortgage pools over time is also outlined