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MBS BANKRUPTCY RESERVE REVISED BY FITCH -- FITCH FINANCIAL WIRE --

 MBS BANKRUPTCY RESERVE REVISED BY FITCH
 -- FITCH FINANCIAL WIRE --
 NEW YORK, Feb. 18 /PRNewswire/ -- Fitch affirms its $100,000 borrower bankruptcy reserve requirement for 'AAA' and 'AA' ratings on pools of mortgage loans secured only by first liens on primary residences. Fitch also revises its bankruptcy reserve requirements for pools containing loans secured by mortgages on non-primary residences and investor-owned homes.
 "Cramdown" or "lien stripping" of first liens on primary residences, although very rare, has occurred in borrower bankruptcies when the value of the real property securing the loan is less than the outstanding balance of the mortgage, and the court prevents foreclosure and reduces the mortgage to the current property value. Courts have relied on Section 506 of the Bankruptcy Code to split the creditor's claim into a "secured" claim equal to the value of the property and an "unsecured" claim equal to the balance. Section 506 has been used to avoid Section 1322 (b)(2), which expressly prohibits modification of a mortgage secured by a first lien on the debtor's primary residence. Fitch has previously required a $100,000 reserve to cover this bankruptcy risk.
 However, the Supreme Court's recent decision in Dewsnup v. Timm et al. held that Section 506 of the Bankruptcy Code cannot be used by a debtor to reduce the amount of a mortgage to the value of the real property. Fitch believes that the court's decision in Dewsnup and the low incidence of cramdowns to date (FNMA and FHLMC have had less than 25 cramdown cases in an aggregate portfolio of 12.8 million loans) could justify elimination of the $100,000 borrower bankruptcy coverage. Fitch will maintain its minimal reserve requirement but will continue to monitor the issue.
 Fitch also has revised its borrower bankruptcy reserve requirement for pools containing loans secured by mortgages on non-primary residences. These mortgage loans are at risk for modification not "cramdown" under the Bankruptcy Code.
 The revised reserve requirements are calculated based on the balances of such mortgage loans with original loan-to-value ratios greater than 60 percent. A monthly shortfall is calculated for each of these loans assuming that the pass-through rate is reduced to 6 percent per annum. The new bankruptcy reserve requirement for these pools is equal to the larger of the product of: the single largest shortfall, the weighted average remaining term (months), and a factor equal to one plus the number of loans secured by mortgages on investor properties or non- primary residences, divided by the total number of loans in the pool; or a $100,000 minimum.
 -0- 2/18/92
 /CONTACT: Mary Sue Lundy, 212-908-0526, or Leah W. Murch, attorney, 212-908-0511, both of Fitch/ CO: ST: IN: FIN SU: RTG


CK -- NY038 -- 9848 02/18/92 10:42 EST
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Date:Feb 18, 1992
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