Standard & Poor's Addresses North Carolina Anti-Predatory Lending Law.

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 18, 2004

Standard & Poor's Ratings Services announced Feb. 12, 2004 that it has reviewed the North Carolina anti-predatory loan provisions set forth in North Carolina's Usury Statute (the Anti-Predatory Lending Law). Based on its review, Standard & Poor's will rate structured finance transactions that include North Carolina loans governed by the Anti-Predatory Lending Law in accordance with its criteria below.

The Anti-Predatory Lending Law categorizes loans as "high-cost home loans" and "consumer home loans." A high-cost home loan is defined as a loan, other than a reverse mortgage loan, which:

-- Exceeds either the annual percentage rate, points and fees, or

prepayment fee threshold set forth in the Usury Statute;

-- Is secured by either a security interest in a manufactured

home, as defined in the Usury Statute, which is or will be

occupied by the borrower as the borrower's principal dwelling,

or a mortgage or deed of trust on real estate on which there

is located or will be located a structure(s) designed

principally for occupancy of from one to four families and

which is or will be occupied by the borrower as the borrower's

principal dwelling;

-- Has a principal amount, or initial maximum credit limit for

open-end lines of credit, that does not exceed the lesser of

the conforming loan size limit for a single family dwelling as

established from time to time by the Federal National Mortgage

Association, or $300,000; and

-- Is incurred by the borrower primarily for personal, family, or

household purposes.

Unlike high-cost home loans, consumer home loans are not tied to an annual percentage rate, points and fees, or prepayment fee threshold. A consumer home loan is defined as a loan, including an open-end credit plan but excluding a reverse mortgage loan, that is incurred by the borrower primarily for personal, family, or household purposes, and is secured by a mortgage or deed of trust upon real estate on which there is located or will be located a structure(s) designed principally for occupancy of from one to four families and that is or will be occupied by the borrower as the borrower's principal dwelling.

Generally, the effective dates for the provisions relating to high-cost home loans and consumer home loans are July 21, 2000, and Oct. 1, 1999, respectively; as a general matter, Standard & Poor's has not issued releases regarding anti-predatory lending statutes that became effective before its initial predatory lending release regarding the Georgia Fair Lending Act, published Jan. 16, 2003. However, because of the numerous inquiries Standard & Poor's has received regarding North Carolina's Anti-Predatory Lending Law, it is issuing this release to clarify its position.

For lenders who choose to make loans covered by the Anti-Predatory Lending Law, the Usury Statute prohibits certain practices and sets forth certain rules to which a lender must adhere. High-cost home loans and consumer home loans that fail to comply with the Usury Statute's requirements could result in liability for the originator of the loan under either the Usury Statute, which allows for the forfeiture of interest and two times the interest paid, or North Carolina's unfair and deceptive practices act (UDPA), which permits treble damages for borrowers, as well as additional damages for Attorney General actions. Neither the Usury Statute nor the UDPA explicitly provides for liability for purchasers or assignees of either high-cost home loans or consumer home loans that violate the Usury Statute. Notwithstanding this absence of explicit liability, however, North Carolina case law has held assignees liable for such violations. Although recovery under either the Usury Statute or the UDPA may exceed the unpaid principal balance of the loan, this liability is capped.

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 in its rated securities. In its review of North Carolina's Anti-Predatory Lending Law, Standard & Poor's followed its general approach set forth in its article on evaluating predatory lending statutes, "Evaluating Predatory Lending Laws: Standard & Poor's Explains Its Approach," published April 15, 2003, on RatingsDirect, Standard & Poor's Web-based credit analysis system at www.ratingsdirect.com.

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

First, for Standard & Poor's to rate transactions that include high-cost home loans and consumer home loans, Standard & Poor's will impose criteria that are more stringent than those for transactions that do not include these loans. For transactions that include these loans, 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 (i) 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 and (ii) support any contingent liability associated with securitizing high-cost home loans and consumer home loans.

Second, with regard to loans included in a securitized pool, Standard & Poor's will require sellers to demonstrate that their existing compliance procedures are effective to identify which loans are high-cost home loans and consumer home loans under the Usury Statute, and determine that these loans do not violate the Usury Statute.

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.