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Credit Rating Agencies

Credit Rating Agencies ultimately determine the ability of a lender to fulfill obligations to a borrower based on specific analysis and assessment. A Credit Rating Agency (CRA) is a company that assigns credit ratings based on the history and ability of a debtor’s interest on debts, playing an important role in the home buying process and real estate industry as a whole. They also record the history of the debtor’s likelihood and potential to meet legal and financial obligations. While Credit Rating Agencies do not rate individual consumers, they do rate the issuers and servicers of the debt. This may include, for instance non-profit organizations, local or national governments, self-governing nations and special interest entities. The debt vehicles rated by CRA’s tend to include certificates of deposits, government and corporate bonds, insurance debt obligations, etc. For real estate investment specifically, their job is to monitor debt servicers such as banking institutions and loan agencies. Incidentally, Credit Rating Agencies played a significant role in the United States’ most recent recession. Many of the agencies that were relinquished by 2010 were actually rated as the topmost included loan agencies up until 2008 and 2009- previously lending trillions of dollars to under qualified applicants with bad credit history and lacking in properly documented incomes. As a result, three major investment banks collapsed and the federal government subsequently inherited over $700 billion in imbalanced debt from several suffering financial institutions. Credit Rating Agencies and major lending institutions have since tightened lending regulations and procedures in effort to aid in the economic recovery.

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