The Securities and Exchange Commission (SEC) has asked whether credit rating agencies (CRA) committed fraud by misleading investors with respect to the default risk on mortgage backed securities (MBS). This paper argues that, to the detriment of investors, the CRA did not incorporate information...

The residential mortgage backed securities (MBS) market expanded and collapsed as securitizers packaged increasingly toxic loans into private label MBS. Underwriting of the ability to repay was replaced with new affordability products and expectation of continuously rising home prices. The risk...