No. 55, Summer/Fall 2004> > > >
Standard and Poor's Ratings Services has announced that it will require additional credit enhancement for certain loans that are governed by anti-predatory lending laws and that are included in its rated mortgage-backed securities.
Standard and Poor's reported on May 13, 2004, that it will require additional credit enhancement for loans covered by antipredatory lending laws that it believes contain subjective or unclear standards—such as poorly or undefined net tangible benefit and repayment-ability tests—in determining whether loans are "predatory."
Standard and Poor's, which made the changes following a comprehensive year-long review of more than 40 federal, state, and local anti-predatory laws, said it anticipates that an increasing number of loans governed by these laws are likely to be included in its rated transactions.
It said it will continue to exclude from its rated pools high-cost home loans as defined in New Jersey's anti-predatory law.
The additional credit enhancement is based on Standard and Poor's assessment of potential losses in the securitization, including such factors as the number of successful lawsuits likely to be asserted against the issuer, statutory borrower rights, and the maximum potential damages that could be awarded.
Standard and Poor's identified some jurisdictions, including Pennsylvania, in which existing anti-predatory lending laws do not impose any additional assignee liability.
The rating agency said that it may waive additional credit enhancements if a seller of loans meets financial-capacity requirements. It noted that in assessing risks from anti-predatory lending laws, it looks for clear language that enables originators or sellers to comply with the law.
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