Fitch Ratings Addresses Illinois Predatory Lending Legislation.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 15, 2003

On Aug. 20, 2003 Governor Blagojevich signed SB 1784/PL 93-0561, the High Risk Home Loan Act (the Act), a law addressing predatory lending issues in Illinois. Sections of the Act pertaining to 'high-risk home loans', which are Illinois 'high-cost' loans, are effective Jan. 1, 2004. Fitch will continue to rate RMBS transactions containing all mortgage loans originated in Illinois as of Jan. 1, 2004, including 'high-risk home loans'.

Fitch has previously indicated that it will not rate residential mortgage-backed securities (RMBS) transactions that contain loans which are originated in jurisdictions that have enacted legislation that may result in unlimited purchaser or assignee liability for predatory lending practices of an originator, broker or servicer (see press release dated May 1, 2003, 'Fitch Revises its Rating Criteria in the Wake of Predatory Lending Legislation', available on the Fitch Ratings web site at 'www.fitchratings.com').

Under the Act, a 'high risk home loan' is a home equity loan which is a loan, not limited by size, secured by the borrower's primary residence that is in Illinois and that meets at least one of the following two thresholds: 1) the APR at origination is at least 6% (first mortgage) or 8% (second mortgage) over the comparable yield on Treasury securities, or 2) the total points and fees on the loan equal the greater of a) 5% of the loan amount, or b) $800 (adjusted annually for inflation). High risk home loans do not include transactions for the purchase of a residence, or transactions under an open-end-credit plan.

Similar to anti-predatory lending legislation enacted in other jurisdictions, the Act describes a variety of prohibited terms and practices for high risk home loans. Under an action brought by a person against a creditor or assignee, if a court finds that a violation of the Act has occurred, the Act provides for a variety of damages.

Since the Act provides for assignee liability which, although greater than the loan balance, is limited, Fitch will rate RMBS transactions containing all mortgage loans, including high risk home loans, originated in Illinois as of the Jan. 1, 2004 effective date of the Act. However, as is true for all 'high-cost' designated mortgage loans, such as HOEPA loans, the inclusion of Illinois high risk home loans in RMBS transactions may subject the transactions to additional credit enhancement requirements. Fitch calculates, by affected jurisdiction, frequency and severity increases related to such high cost loans and adjusts transactional credit enhancement requirements to include such increases.

Fitch continues to expect applicable transaction documents to contain representations and warranties which state that: 1) all mortgage loans are originated in compliance with state, local, and federal laws and that 2) no loan, except as identified in detail to Fitch, is a high risk home loan under Illinois law. Originators and/or sellers of mortgage loans to an RMBS issuer must be able to properly identify the existence of such loans, if any, as part of the rating process. In the event of a breach of these representations or warranties, the repurchase price of any affected loan should be equal to: 1) the outstanding indebtedness of the loan (including, but not limited to late fees), plus accrued interest, plus 2) reasonable attorneys' fees and costs and all other damages which may be incurred by an RMBS transaction under the law.

Fitch will rate, without additional credit enhancement that might otherwise be assessed in other transactions, residential mortgage-backed securities (RMBS) transactions containing any mortgage loans subject to the Act which were originated by OTS-regulated federally-chartered savings associations and their operating subsidiaries. (see press release dated Aug. 21, 2003, 'Fitch Ratings Addresses Preemption Statements From The OTS & OCC', also available at 'www.fitchratings.com').

In addition, the comment period has ended for a proposed rulemaking by the OCC that would amend its implementing regulations to add provisions clarifying the applicability of state law to national banks. If the amendments to 12 CFR parts 7 and 34 are enacted as proposed, Fitch would likely reach similar conclusions regarding preemption of the Act for mortgage loans originated by both OCC-regulated national banks and their operating subsidiaries as the conclusions reached with respect to OTS-regulated federal savings institutions and their operating subsidiaries.

Finally, Fitch is aware that some jurisdictions may seek to challenge the preemption determinations of the OTS and OCC and will monitor those actions and, in the event of a successful action, respond accordingly

Fitch will continue to monitor anti-predatory lending legislation and provide the market with timely commentary on its rating approach.