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By Bloomberg

Standard & Poor’s, the world’s largest credit ratings company, is reevaluating how it ranks certain types of residential-mortgage bonds after the U.S. Securities & Exchange Commission found that it didn’t properly follow its own criteria.

As many as 400 ratings may be affected by inaccurate default-rate assumptions tied to RMBS deals offered before 2009, the unit of McGraw Hill Financial Inc. said yesterday in a statement. S&P used lower default assumptions than prescribed by its criteria when evaluating short-amortizing loans from October 2012 to January 2014, according to a Jan. 21 SEC order. The regulator also found that S&P didn’t follow its internal policies for making changes to criteria and properly disclosing them.

April Kabahar, an S&P spokeswoman, declined to comment on what effect the change will have to the ratings. The company said in a separate document its criteria changes would generally result in a “modest” number of upgrades or downgrades. Most mortgage bonds issued before the 2008 financial crisis have been downgraded to low speculative grades, while some retained high rankings, and small ratings changes often don’t affect their prices.

The SEC’s findings were disclosed on Jan. 21 as part of a settlement in the toughest action the regulator has taken against any of the three biggest credit ratings companies. The SEC suspended S&P from rating certain commercial-mortgage backed bonds after determining the ratings company bent criteria to win business.