Summary
Three U.S. senators have started an investigation into the insurance ratings firm Demotech. They are concerned that the company's ratings might not be reliable and could pose risks to mortgage giants Fannie Mae and Freddie Mac, as well as taxpayers. The senators worry that these issues might lead to financial problems, especially in Florida, where Demotech's ratings have been particularly problematic.
Key Facts
- Three U.S. senators launched an investigation into Demotech, an insurance ratings company.
- Demotech's ratings are considered "lightly regulated" and may expose Fannie Mae and Freddie Mac to risks.
- The investigation is focused on the high number of failed insurers in Florida and Louisiana rated by Demotech.
- Demotech started rating smaller insurance companies in 1985.
- Over 60% of Florida insurers had Demotech ratings, with 20% becoming insolvent from 2009 to 2022 while holding an "A" rating.
- Senators are concerned that Demotech's ratings allow risky mortgages to be offloaded onto Fannie Mae and Freddie Mac.
- Fannie Mae and Freddie Mac back most of the 51 million residential mortgages in the U.S.
- The senators argue that these practices could lead to market destabilization similar to the 2008 crisis.
