S&P to reject some Georgia loans
January 22, 2003
Says 'investors can't be insulated from potential liability'
Inman News Features
Conforming-balance mortgage loans and manufactured housing loans governed by the Georgia Fair Lending Act won't be allowed in Standard & Poor's rated structured finance transactions beginning Feb. 1, according to Standard & Poor's.
The decision was based on Standard & Poor's assessment that investors can't be insulated from the potential liability resulting from violation of the Georgia Fair Lending Act either through credit enhancement or legal structure.
Loans governed by the GFLA are categorized as "home loans," "covered home loans" or "high cost home loans." Each category has its own requirements, and covered home loans and high-cost home loans also have fees, points and annual percentage rate tests.
Standard & Poor's said violations of the statute would subject violators to potentially severe liability and that the act subjects assignees of home loans that violate the act to potential liability. That means depositors, issuers, servicers and other transaction parties in securitizations might be subject to penalties for violations under the act.
"Since it is not feasible to ensure that all GFLA-governed loans have been originated in compliance with the act, and given that the liability associated with non-compliance may subject depositors and trusts to liability exceeding a loan's principal balance, these loans are being disallowed and a representation that no mortgage loans meeting the definition of home loans will be required in transactions," Standard & Poor's said in a statement.
Mortgage loans on Georgia properties not governed by the act can be included in Standard & Poor's rated transactions. That category includes loans with an unpaid principal balance of more than the $322,700 single-family home conforming loan limit, reverse mortgages, bridge loans that finance the initial construction of the borrower's primary residence, agricultural loans and loans for commercial purposes.
Standard & Poor's will require servicers who service GFLA-governed loans to maintain individual accounts for deposit and remittance of payments pertaining to an issuance. Commingling of cash won't be permitted for servicers who service loans subject to the GFLA.
Standard & Poor's provides financial data, analytical research and investment and credit opinions to the global capital markets. The company has 5,000 employees in 18 countries.
Laurence Platt, an attorney with Kirkpatrick & Lockhart LLP, called Standard & Poor's decision "remarkable."
"This is the first major capital markets participant to exclude from rated transactions Georgia conforming loans that don't meet any high-cost or covered loan trigger and are otherwise eligible for sale to Fannie Mae and Freddie Mac," said Platt.
Kirkpatrick & Lockhart is a national law firm that Fortune 500 companies in litigation, corporate and regulatory matters.
Copyright: Inman News Service