Discrimination Complaint Filed Against Wall Street Rating Agencies: Black & Latino Home Buyers Disproportionately Harmed

In what is apparently the first legal action of its kind, an association of community-based organizations has filed a federal civil rights complaint against two of the three largest Wall Street ratings agencies, charging that their inflated ratings on subprime mortgage bonds disproportionately caused financial harm to African-American and Latino home buyers across the country.

The complaint, filed by the National Community Reinvestment Coalition, alleges that Moody's Investor Services and Fitch Ratings Ltd. enriched themselves by assigning high ratings to bonds backed by mortgages "that were designed to fail" because of "unfair payment terms and insufficient borrower income levels."

The agencies "knew or should have known" that subprime loans disproportionately were marketed to minority consumers — a process known as "reverse redlining" — and that those borrowers would ultimately default and go into foreclosure at high rates, according to the complaint.

Fitch managing director David Weinfurter said NCRC's filing "is fully without merit, and Fitch intends to defend itself vigorously." Moody's had no immediate comment. The filing cites multiple studies that found that African-Americans and Latinos received a disproportionate share of subprime loans during the housing boom. A Federal Reserve study in 2006 estimated that 45 percent of mortgages extended to Latinos and 55 percent of loans to African-Americans were subprime — a utilization rate "three to four times that of non-Hispanic whites." [MORE]