Fitch Responds to Illinois Interest Act Court Action.
NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- On Nov. 24, 2004, the Illinois Supreme Court decided to grant a leave to appeal petition that had been filed with the court in regards to U.S. Bank v. Clark, which had been decided by an Illinois Appellate Court The Illinois Appellate Court is the court of first appeal for cases arising in the trial courts of the state of Illinois.
The court has 54 judges serving five separate districts. on March 31, 2004. The focus of the Clark case revolves around the issue of state 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 from the federal Depository Institutions Deregulation and Monetary Control Act Depository Institutions Deregulation and Monetary Control Act
The 1980 federal legislation that ended the regulation of the banking industry. (DIDMCA DIDMCA Depository Institutions Deregulation and Monetary Control Act ). By thus agreeing to hear the case, the Illinois Supreme Court will now decide whether or not Illinois opted out of DIDMCA, and is consequently governed in accordance with the Illinois Interest Act.
If the Illinois Supreme Court decides that federal law (i.e., DIDMCA) prevails, then Fitch will not need to take any rating action on outstanding deals that include Illinois mortgage loans. In addition, no additional changes or credit enhancement Credit Enhancement
A method whereby a company attempts to improve its debt or credit worthiness.
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 will be necessary for new securitizations. However, if the court decides that the Illinois Interest Act prevails, then Fitch, at that time, will review the court's findings and inform investors as to which course of action Fitch may follow in regards to ratings on outstanding transactions. This course of action may include placing all outstanding transactions that include Illinois mortgage loans on Rating Watch Negative depending on the conditions and/or limitations, if any, in the court's decision. Pending the outcome of each review, Fitch may downgrade the classes of those transactions materially affected by this new, prevailing law. In addition, Fitch may increase credit enhancement for all future transactions that include Illinois mortgage loans impacted by the Illinois Interest Act.
The Illinois Interest Act states that 'in the case of a loan with an interest rate in excess of 8% per annum Per annum
Yearly. secured by residential real estate,' the percentage of the principal amount of the loan represented by all charges in excess of the stated interest rate 'shall not exceed 3% of such principal amount.' It is important to note that this explicitly includes all residential mortgages (other than government loans), whether first or second lien A Second lien financing is a form of financing secured on a second ranking basis by (more or less) the same security, which secures the first ranking financing. The first lien lenders and the second lien lenders agree that, in the event of a security enforcement or bankruptcy, the , purchase or non-purchase money.
In contrast, DIDMCA provides that 'the laws of any State expressly limiting the rate or amount of interest, discount points, finance charges or other charges which may be charged...shall not apply to any mortgage...which is secured by a first lien on residential property.' Hence, if DIDMCA prevails, then there will be no limitation on the points and fees that can be charged on first lien residential loans in Illinois; if the Illinois Interest Act prevails, then there will be a limit of 3% for points and fees on any residential loan, including first liens, with an interest rate greater than 8%.
Fitch will continue to monitor anti-predatory and other state lending legislation and provide the market with timely commentary on its rating approach.