| Ratings Services Review New Kentucky Lending Laws
Predatory lending legislation causes review of RMBS ratings July 3, 2003 By ANNE LINEBERRY |
| Two companies have announced changes in the way they will rate residential mortgage backed securities (RMBS) originated in Kentucky.
Fitch Ratings and Standard and Poor’s both recently reviewed the state’s new predatory lending legislation and reassessed the risk posed to investors in light of the new law. Fitch Ratings said in a press release that they would no longer rate RMBS transactions that contain high cost home loans originated after the law took effect, June 24, 2003. According to Fitch, in addition to loans that are clearly high cost loans and marked as such, the new Kentucky law could allow for unlimited assignee liability on loans that were marked in error as not being high cost loans. In light of the new risk, Fitch said that they would require third-party verification on any RMBS transactions that include Kentucky-originated loans. The statement detailed the process that RMBS transactions with Kentucky-originated loans must go through before the transaction can be rated. If the third-party issues a certificate stating the loans are not high-cost, then Fitch will consider rating the transaction. Standard and Poor’s said they would allow for rating RMBS transactions that include high-cost home loans originated in Kentucky, but only with stringent review that will verify that the high-cost home loans are in compliance with the predatory lending statute, according to a press release issued by Standard and Poor’s and available on the Mortgage Bankers Association of America’s website. According to the statement, the certifier must be “an entity with sufficient financial strength to repurchase high-cost home loans that are in violation as well as cover any contingent liabilty associated with securitizing Kentucky high-cost home loans.” Standard and Poor’s concluded that with those safeguards in place, investors will be protected from liability should such transactions be deemed in violation of the new legislation, the statement said. The law, Kentucky HB-287, provides for penalties for predatory lending in the matter of high-cost home loans, which are described as: Loans with a value of between $15,000 and $200,000, secured by a primary residence, taken out by a person, to be used for personal or household purposes, that can be considered a mortgage under the Home Ownership and Equity Protection Act. |
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Anne Lineberry is MortgageDaily.com‘s editor. She previously worked as an online editor/producer for DallasNews.com and on the Metropolitan desk for the print edition of The Dallas Morning News. Email Anne at AnneLineberry@MortgageDaily.com |
