The attorney-general for the state of Ohio has accused the financial ratings agencies of fuelling America’s mortgage crisis by turning a blind eye to the risks attached to bonds backed by “sub-prime” home loans.

Marc Dann is targeting the agencies as part of an investigation into aggressive lending practices after mortgage banks foreclosed on more than 180,000 home loans in Ohio in the past 2½ years.

Wall Street firms took on many of the riskiest home loans from the mortgage banks and packaged them into bonds. These were given a risk rating by agencies such as Fitch, Standard & Poor’s and Moody’s and sold to pension funds and other institutions.

Mr Dann, who is preparing a case against the agencies but has yet to file formal charges, said: “The ratings agencies helped to keep the market on fire by ensuring that these bond offerings got high enough ratings for them to sell, providing new funds for the mortgage originators to make new loans to increasingly unsuitable borrowers.

“They aided and abetted the process by blessing these issues, even though they knew, or should have known, that many of these bonds were backed by mortgages that had been fraudulently made.”

Many of the securities backed by sub-prime mortgages continued to receive top risk ratings, despite growing evidence of lax lending practices, because most institutions are barred from buying high-risk securities, Mr Dann alleged.

Moody’s denied the allegations, saying: “Our opinions are objective and not tied to any recommendations to buy and sell.” Fitch and Standard & Poor’s declined to comment.

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