The investigation began before S&P, part of the McGraw-Hill Cos., downgraded the long-term U.S. debt rating this month, The New York Times reported Thursday. The inquiry is likely to add fuel to the political firestorm surrounding the downgrade, the newspaper said.
Lawmakers and some administration officials have since questioned the agency's secretive process, credibility and analyst competence, claiming to have found an error in its debt calculations.
In the mortgage inquiry, the U.S. Justice Department is investigating allegations S&P analysts wanted to give lower ratings to certain mortgage bonds but were overruled by other S&P business managers to benefit the business, people with knowledge of the investigation told the newspaper.
During the boom years, S&P and other ratings agencies earned record profits when they gave their highest ratings to bundles of troubled mortgage loans -- making the mortgages appear less risky and thus more valuable than they might legitimately be.
If the government finds enough evidence, a civil legal case could undercut S&P's longstanding claim its analysts act independently from business concerns, the Times said.
It was unclear whether the Justice Department investigation also involved the other two ratings agencies, Moody's Investors Service and Fitch Ratings, the Times said.
The U.S. Securities and Exchange Commission, which enforces federal securities laws and regulates the securities industry, has also been investigating possible S&P wrongdoing and may be looking at Moody's and Fitch, a person interviewed on the matter told the Times.
S&P is well known for its stock-market indexes -- the U.S. S&P 500, the Australian S&P/ASX 200, the Canadian S&P/TSX, the Italian S&P/MIB and the Indian S&P CNX Nifty.
The Justice Department and SEC refused to comment.
S&P spokesman Ed Sweeney told the Times in an e-mail the company had "received several requests from different government agencies over the last few years."
"We continue to cooperate with these requests," the e-mail said. "We do not prevent such agencies from speaking with current or former employees."