S&P Addresses Amendment to Maine Truth in Lending Act

Business Wire, Sept 12, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 12, 2003

Standard & Poor's--Standard & Poor's Ratings Services announced today that it has reviewed Maine House Bill 383 L.D. 494 (the Amendment) that is to become effective on September 13, 2003. The Amendment expands upon Maine's existing high-rate, high-fee lending provisions which were enacted and included as part of its Truth In Lending Act in June of 1995 (the original law and the Amendment are referred to in this release as the Amended Law). Based on its review, Standard & Poor's will rate structured finance transactions that include Maine loans governed by the Amended Law in accordance with its criteria set forth below.

The Amended Law distinguishes between loans that are high-rate, high-fee loans (these loans shall be referred to as high cost in this release) and those that are not and sets forth the terms for what constitutes a high-cost loan. Accordingly, lenders who wish to avoid making high-cost loans should be able to do so. For lenders that choose to make high-cost loans, the Amended Law prohibits certain practices and sets forth certain rules to which a lender must adhere. High-cost loans that fail to comply with the Amended Law requirements would violate the Amended Law. These violations could result in liability for the originator of the high-cost loans. In addition, these violations could also result in liability for purchasers or assignees of high-cost home loans. Although the liability of purchasers and assignees for a loan that violates the Amended Law 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 of its rated securities. In its review of the Amended Law, Standard & Poor's followed its general approach set forth in its recently 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 on RatingsDirect on April 15, 2003).

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

For transactions that do not include high-cost loans, Standard & Poor's will require the seller to provide a representation and warranty that the loans in the rated pools are not high-cost loans. Standard & Poor's will require this representation from a creditworthy entity that can demonstrate that existing compliance procedures are effective to track the calculations for identifying high-cost loans under the Amended Law. Standard & Poor's will then look for repurchase of any loan that is in breach of this representation at a purchase price that will include any costs and damages incurred by the issuing trust in connection with such loan. In addition, Standard & Poor's will continue to rely on the representation and warranty that the loans included in the pool were originated in compliance with all applicable laws, including, but not limited to, all applicable predatory and abusive lending laws.

Where sellers propose to include high-cost loans in a securitization, Standard & Poor's will impose criteria that are more stringent than those outlined for non-high-cost loans. For these transactions, Standard & Poor's will require its standard compliance representation set forth above. This representation and warranty must be provided by an entity with sufficient financial strength to repurchase high-cost loans that are in violation, as well as cover any contingent liability associated with securitizing Maine high-cost loans.

In addition, Standard & Poor's will require issuers to demonstrate that their compliance procedures can effectively: (i) identify high-cost loans and (ii) determine that these loans do not violate the Amended Law.

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 212-438-7530 or adam_tempkin@standardandpoors.com.

Contact: Maureen Coleman, Esq., New York, 212-438-6626; Natalie Abrams, Esq., New York, 212-438-6607.

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