S&P Revises Criteria to Address Repeal of Provision Under New Mexico Home Loan Protection Act.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 10, 2004

Standard & Poor's Ratings Services announced today that it has reviewed New Mexico Senate Bill 228 (the Bill) that repeals Section 7 of the New Mexico Home Loan Protection Act (the Act) and that was signed by the governor Feb. 26, 2004. The Bill became effective immediately. Based on its review of the Bill, Standard & Poor's is revising certain of its criteria for structured finance transactions that include New Mexico loans governed by the Act as set forth in its prior release on loans governed by the Act (see "Standard & Poor's Addresses New Mexico's Home Loan Protection Act," (NM Nov. 25, 2003, Release) published Nov. 25, 2003, on RatingsDirect, Standard & Poor's Web-based credit analysis system. The press release is also available on the Standard & Poor's Web site at www.standardandpoors.com. Select Credit Ratings, then Credit Ratings Criteria, and then find the article under SF Legal Criteria). The revised criteria are set forth below.

The Act and the Bill: The Act categorizes loans as "Home Loans" and "High-Cost Home Loans" and sets forth certain practices and prohibitions in connection with these categories. In addition, the Act previously provided extra protections for borrowers under Home Loans that are made in connection with home improvements ("Home Improvement Loans") and manufactured homes ("Manufactured Housing Loans"). Section 7 of the Act provided that for Home Loans that are made, arranged, or assigned by a person selling manufactured homes or selling home improvements, a borrower may assert all affirmative claims and defenses that the borrower may have against the manufactured-home seller or home improvement contractor, or against a creditor, holder, or servicer of such a loan. The Act, however, did not define a Home Improvement Loan or a Manufactured Housing Loan so an assignee could not tell whether its purchase of a Home Loan that in any way involved home improvements or a manufactured home would subject the assignee to increased liability. By repealing Section 7 of the Act, the Bill removed the possibility of this additional layer of liability for purchasers and assignees of Home Loans based on the acts, errors, or omissions of a manufactured-home seller or home improvement contractor. The Bill did not otherwise limit the prohibited practices with respect to Home Loans and High-Cost Home Loans. Damages may still be imposed on purchasers or assignees of either Home Loans or High-Cost Home Loans in accordance with the Act in amounts essentially equal to the unpaid principal balance of the loan and reasonable costs and attorneys' fees.

Standard & Poor's Criteria: For loans governed by a predatory lending statute, Standard & Poor's evaluates the impact the statute may have on the availability of funds to pay investors of its rated securities. In its review of the Act and the Bill, Standard & Poor's followed its general approach set forth in its published article on evaluating predatory lending statutes. (For a discussion of Standard & Poor's general approach to evaluating predatory lending statutes, see "Evaluating Predatory Lending Laws: Standard & Poor's Explains Its Approach," published April 15, 2003, on RatingsDirect. The article is also available on the Standard & Poor's Web site.)

In evaluating rated transactions that include New Mexico originated loans, Standard & Poor's will follow the analyses outlined below.

First, Standard & Poor's will continue to rely on the representation and warranty that the loans in the rated pool were originated in compliance with all applicable laws, including, but not limited to, all applicable anti-predatory and abusive-lending laws (Compliance Representation). Standard & Poor's will require the Compliance Representation to be provided by a creditworthy entity with sufficient financial strength to repurchase loans that are in breach of this representation at a purchase price that would make the securitization issuer whole, including any costs and damages incurred by the issuer in connection with such loan.

Second, with regard to loans included in a securitized pool, Standard & Poor's stated in its NM Nov. 25, 2003, Release that it will require issuers to demonstrate that existing compliance procedures are effective (i) to identify which loans constitute Home Loans, High-Cost Home loans, Home Improvement Loans, and Manufactured Housing Loans under the Act, and (ii) to determine that these loans do not violate the Act. Because the Bill eliminated the liability imposed on purchasers and assignees of Home Improvement Loans and Manufactured Housing Loans, Standard & Poor's will now require that issuers' compliance procedures are effective (i) to identify which loans constitute Home Loans and High-Cost Home Loans, and (ii) to determine that these loans do not violate the Act. It will no longer require issuers' compliance procedures to be able to identify Home Improvement Loans and Manufactured Housing Loans.

For a discussion of Standard & Poor's criteria regarding loans covered by the Act, see its NM Nov. 25, 2003, Release, noted above. For a discussion of Standard & Poor's criteria regarding loans covered by the Act and originated by federal thrifts and their operating subsidiaries or by New Mexico state chartered thrifts, see "Standard & Poor's Announces Position on OTS Preemption Pronouncements," published Nov. 25, 2003. For a discussion of Standard & Poor's criteria regarding loans covered by the Act and originated by national banks and their operating subsidiaries, see "S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws," published March 3, 2004. For a fuller discussion of the criteria regarding national banks, see "Standard & Poor's Addresses OCC Rule Regarding Preemption of State Anti-Predatory Lending Laws," published March 3, 2004. These articles are available on RatingsDirect and the Standard & Poor's Web site.

Standard & Poor's regularly reviews its criteria to keep current with changes in the law in the area of predatory lending. These criteria are not stagnant, but evolve over time. Standard & Poor's will continue to publish its criteria to keep market participants informed of any new approaches in this area.

Members of the media may contact Adam Tempkin, Media Relations Manager, at (1) 212-438-7530, or by e-mail at [e-mail].

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