Moody's upgrades CDO after discovering that assets had not defaulted

In response to the first comment. Investors do read the trustee reports, it's the rating agencies reports they no longer read, for exactly these sorts of reasons. Along with the ever changing "change in methodology" revisions...

A sad commentary of the over reliance of the rating agencies on their models. It also speaks to the silos the rating agencies have built over the years isolating their structured finance teams from the more common sense and qualitative approach of their corporate colleagues.

Why are you so surprised - The RAs make their own assumptions and default non defaulted assets when they run their tests which since many aren't actually defaults in the first place makes a mockery of what actually constitutes a default to investors.

and it took investors 15 months to notice! - don't they read the trustee reports??