Fitch Ratings Addresses Predatory Lending Legislation of Oklahoma.Business Editors NEW YORK--(BUSINESS WIRE)--Oct. 30, 2003 On May 30, 2003, Governor Henry approved HB 1574, which includes the Oklahoma Home Ownership and Equity Protection Act (the Act), a law addressing predatory lending issues in Oklahoma. Sections of the Act pertaining to 'subsection 10 mortgages', which are Oklahoma 'high-cost' loans, are effective Jan. 1, 2004. Fitch will continue to rate residential mortgage-backed securities Residential mortgage-backed securities (RMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on residential rather than commercial real estate. (RMBS RMBS Residential Mortgage-Backed Securities RMBS Rambus, Inc. (NASDAQ stock symbol) RMBS Russian Mortgage-Backed Securities ) transactions containing all mortgage loans originated in Oklahoma as of Jan. 1, 2004, including 'subsection 10 mortgages'. Fitch has previously indicated that it will not rate RMBS transactions that contain loans which are originated in jurisdictions that have enacted legislation that may result in unlimited purchaser or assignee assignee (assign) n. a person to whom property is transferred by sale or gift, particularly real property. (See: assign) ASSIGNEE. One to whom an assignment has been made. 2. 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 Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. web site at 'www.fitchratings.com'). Under the Act, a 'subsection 10 mortgage' is a consumer credit transaction which is a closed-end loan, not limited by size, secured by the consumer's principal dwelling which is in Oklahoma and that meets at least one of the following two thresholds: 1) the APR APR See: Annual Percentage Rate is at least 8% (first mortgage) or 10% (second mortgage) over the comparable yield on Treasury securities, or 2) the total points and fees on the loan equal the greater of a) 8% of the loan amount, or b) $400 (adjusted annually for inflation). Subsection 10 mortgages do not include transactions for the purchase or initial construction of a consumer dwelling, reverse mortgages, 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 subsection 10 mortgages. 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. The potential damages described in the Act closely track potential damages described in 15 U.S.C.A. 1640 and 1641, of the Truth in Lending Act The Truth in Lending Act is contained in Title I of the Consumer Credit Protection Act (15 U.S.C.A. § 1601 et seq.). The CCPA is designed to assure that every customer who needs Consumer Credit is given meaningful information concerning the cost of such credit. (TILA TILA Truth In Lending Act ). In fact, the language in the Act describing potential assignee liability is virtually identical to the relevant sections of the federal Home Ownership and Equity Protection Act of 1994 (HOEPA HOEPA Home Ownership and Equity Protection Act ), which amended the TILA. 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 subsection 10 mortgages, originated in Oklahoma as of the Jan. 1, 2004 effective date of the 'high-cost' provisions of the Act. However, as is true for all 'high-cost' designated mortgage loans, such as HOEPA loans, the inclusion of subsection 10 mortgages in RMBS transactions may subject the transactions to additional credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing 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 subsection 10 mortgage under Oklahoma 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 Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. , 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 preemption U.S. policy that allowed the first settlers, or squatters, on public land to buy the land they had improved. Since improved land, coveted by speculators, was often priced too high for squatters to buy at auction, temporary preemptive laws allowed them to acquire Statements From The OTS See Office of Thrift Supervision. & OCC', also available at 'www.fitchratings.com'). In addition, the comment period has ended for a proposed rulemaking by the OCC OCC See: Options Clearing Corporation OCC See Options Clearing Corporation (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 CFR See: Cost and Freight 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. |
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