Fitch To Rate RMBS After Amendment To Georgia Predatory Lending Statute.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 14, 2003

Fitch Ratings today announced that it will now rate residential mortgage-backed securitizations (RMBS) that include mortgage home loans originated after the recent amendments to the Georgia Fair Lending Act (GFLA). While Fitch believes that it is able to quantify the risk that exists with respect to the remaining assignee liability, Fitch sees challenges associated with 'high cost home loans' as defined by the amended legislation.

The GFLA, which became effective on Oct. 1, 2002, has been amended with the new provisions taking effect immediately upon execution by the Governor of Georgia on March 7, 2003. The amended GFLA implements many changes with respect to residential mortgage loans originated in Georgia after its effective date. However loans originated between Oct. 1, 2002 and March 7, 2003 will be subject to the prior version of the GFLA. The amended GFLA addresses many important issues including changes in assignee liability and limitations on damages which may be assessed against assignees of residential mortgage loans.

Fitch will now rate RMBS pools which include 'high cost home loans' originated in Georgia, subject to the application of additional credit enhancement due to potentially high loss severity. Fitch has made this decision with respect to 'high cost home loans' because assignee liability has been limited. Based on the amended statute, an assignee holding a high cost home loan may be subject to a minimum liability of zero, if the assignee can prove that it exercised 'reasonable due diligence' intended to prevent the purchase of a high cost home loan, at the time of purchase of the high cost home loan or within a reasonable time thereafter. The maximum liability which may be assessed against the assignees under the statute is the outstanding indebtedness on the loan, plus reasonable attorneys' fees in the event that the assignee is unable to prove such due diligence.

Although there is significantly less risk to the investor community associated with loans originated in Georgia in accordance with the current GFLA, Fitch remains concerned about the interpretation of certain provisions with respect to high cost home loans. For example, a loan which is not initially considered high cost could ultimately be determined as such. Specifically, while the APR thresholds and the points and fees thresholds are seemingly clearly defined, it may be difficult to determine if points and fees are calculated correctly. Additionally, the GFLA allows assignees to mitigate exposure to high cost home loans, by exercising reasonable due diligence at the time of purchase of such home loan. 'Absent guidance as to what actions will constitute "reasonable due diligence" it may be difficult for assignees to meet such standard,' said Steve Grundleger, RMBS Managing Director, Fitch Ratings.

Due to the limitation of damages that can be assessed against any assignee, even if the assignee cannot prove that it exercised due diligence, Fitch is comfortable rating RMBS pools with Georgia loans, if the enhancement is sized to take such liability into account. Carol Faber, Senior Director, Subprime, Fitch Ratings said, 'For any high cost home loan included in a securitization that Fitch rates, Fitch expects investors will be adequately protected if there is additional credit enhancement to reflect the exposure to the limited assignee liability provisions of the Act.' As is typical for any loan or security analysis, Fitch analyzes the probability and severity of losses associated with any loan. In the case of Georgia high cost home loans, Fitch will assign a frequency and severity factor to address the additional risk associated with the GFLA.

The severity will be determined based upon the maximum limitations set forth in the statute which are equal to the sum of all remaining indebtedness of the borrower plus reasonable attorneys' fees. The frequency factor will be determined on a case by case basis as we gather information about the due diligence process associated with the purchase of Georgia loans.