Top executives at two credit rating agencies defended themselves Friday against charges that, to retain market share, they knowingly issued inflated ratings on MBS before the financial crisis and put off making needed changes in their standards.

Officials from Moody's Investors Service and Standard and Poor's tried to rebut a congressional report released Thursday by arguing that they had been public about flaws in the mortgage market and had made changes to better adjust to risk.

"Moody's did see the escalating housing prices and the loosening of standards in subprime lending practices, we published on these observations, and we incorporated our more unfavorable views into the way we assigned ratings," said Raymond McDaniel Jr., the chairman and CEO at Moody's, in a hearing by the Senate Permanent Subcommittee on Investigations.

But former employees of S&P and Moody's painted a much different picture, telling lawmakers that executives pressured analysts to maintain market share. They were discouraged, they said, from raising questions about the credit quality of some loans backed by mortgages.

Eric Kolchinsky, a former director of Moody's derivatives group, testified that in October 2007, days after the firm downgraded $33 billion in subprime bonds, he was reprimanded by e-mail because quarterly market share fell to 94%, from 98%.

"It appeared to me that my manager was more concerned about losing a few points of market share than about violating the law," Kolchinsky told lawmakers. "This was the most disturbing e-mail I had ever received in my professional career."

Questioned by Sen. Ted Kaufman, D-Del., McDaniel denied that analysts ever faced pressure to inflate ratings to keep business in the pipeline.

"Ratings quality is paramount at Moody's and continues to be," McDaniel said. Subcommittee Chairman Carl Levin focused his questions on e-mails and data compiled in a report that capped an 18-month investigation into the role ratings agencies played in the financial crisis.

The report pointed to internal e-mails as evidence that ratings agencies were pressured by investment banks to keep ratings criteria static.

A March 2005 e-mail between Standard & Poor's employees said that a revised ratings model "could've been released months ago and resources assigned elsewhere if we didn't have to massage the subprime and Alt-A numbers to preserve market share."

Kathleen Corbet, the president of Standard & Poor's from 2004-2007, said the e-mail was "certainly troubling" but reiterated that market share never compromised the quality of ratings.

Levin also referred to memos sent internally within Standard & Poor's that questioned the collateral quality of loans issued by Fremont Investments and Loan, a California lender the Michigan Democrat characterized as widely known for issuing low-quality loans.

When a Standard & Poor's analyst asked a supervisor in an e-mail whether Fremont's collateral should be treated differently, the supervisor said "no." Loans issued by Fremont were rated AAA in 2007 but have since been downgraded to junk status.

Corbet said that collateral was, and should be, one of many factors ratings committees use to determine ratings and that loan quality is one of many variables that are considered.

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