S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws

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Anti-Predatory Lending Law Update

Contact(s):
Natalie Abrams, Esq., New York (1) 212-438-6607;
natalie_abrams@standardandpoors.com
Maureen Coleman, Esq., New York (1) 212-438-6626;
maureen_coleman@standardandpoors.com
Frank Raiter, New York (1) 212-438-2579;
frank_raiter@standardandpoors.com
Susan E Barnes, New York (1) 212-438-2394;
susan_barnes@standardandpoors.com
Scott Mason, New York (1) 212-438-2539; Publication date: 19-Oct-04, 13:25:03 EST
scott_mason@standardandpoors.com Reprinted from RatingsDirect

Quick Links (Editor's note: This article was originally published May 13, 2004. It is being republished to reflect
Appendix: Standard & updates to the table. An updated version follows.)
Poor's Assumptions
Anti-Predatory Lending Law Update

Jurisdictions with Assignee Liability

Jurisdiction Indicative
Servicer Subjective Maximum Additional
and Loan Mitigating Loss
Violation Standards Securitization Enhancement
Effective Categories Factors* Severity¶
Trust Exposure Required
Date (%)

Federal/HOEPA

Remaining
balance of the
loan, plus
High Cost principal paid by
Oct. 1, 1995 Loans N Y N the borrower, 119 Y
(Section 32) plus interest paid
to date, plus
attorneys’ fees
and costs.

Arkansas

Amount of all
remaining
indebtedness of
the borrower,
plus total amount
July 16, High Cost
Y Y N paid by borrower 196 Y
2003 Home Loans
in connection
with the
transaction, plus
attorneys’ fees
and costs.

Cleveland Heights, Ohio

Rescission of the
June 2, Covered loan, plus
Y Y N 37 Y
2003 Loans attorneys' fees
and costs.

Colorado
S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws

Remaining
balance of the
loan, plus
principal paid by
June 7, Covered
Y Y N the borrower, 119 Y
2002 Loans
plus interest paid
to date, plus
attorneys’ fees
and costs.

Connecticut

Refund of
excessive
prepaid finance
High Cost
Oct. 1, 2001 Y Y N charges, N.A.§ N.A.
Home Loans
prepayment fees,
and default
charges.

District of Columbia

Amount of all
remaining
indebtedness of
the borrower, the
total amount paid
Jan. 28, Covered
Y Y N by the borrower 137 Y
2003 Loans
in connection
with the
transaction, plus
attorneys' fees
and costs.

Florida

Remaining
balance of the
loan, plus
principal paid by
High Cost
Oct. 2, 2002 Y Y N the borrower, 119 Y
Home Loans
plus interest paid
to date, plus
attorneys’ fees
and costs.

Georgia Pre Amendment

Loans
Oct. 1, 2002 Home Loans Y N N Unquantifiable. N.A.
Excluded

Covered Loans
N Y N Unquantifiable. N.A.
Home Loans Excluded

High Cost Loans

Y Y N Unquantifiable. N.A.
Home Loans Excluded

Georgia Post Amendment

S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws

March 7,
2003, and
thereafter.
The Amount of all
amended remaining
act High Cost indebtedness of
Y Y N 110 Y
eliminates Home Loans the borrower,
assignee plus attorneys
liability for fees and costs.
home loans
and covered
home loans.

Indiana

Rescission of the
loan, plus
Jan. 1, 2005 Home Loans Y Y** N 37 Y
attorneys fees
and costs.

High Cost Loans

Y Y N Unquantifiable¶¶ N.A.
Home Loans Excluded

Illinois

Amount required
to extinguish
borrower's
High Risk
Jan. 1, 2004 Y Y N liability on the 110 Y
Home Loans
loan (UPB) plus
attorneys’ fees
and costs.

Kansas

Amount required
to extinguish the
High Loan-to-
borrower’s
April 14, Value
N N N.A. liability under the 196 N
1999 Consumer
loan (UPB) plus
Loan
attorneys' fees
and costs.

Amount required
to extinguish the
High APR borrower’s
Consumer N N N.A. liability under the 196 N
Loan loan (UPB) plus
attorneys' fees
and costs.

Kentucky

Forfeiture of
interest charges,
June 24, High Cost plus twice the
Y Y Y 275 N
2003 Home Loans interest paid, plus
attorneys’ fees
and costs.

Los Angeles, Calif.

High Cost
Loans
Pending Refinance Y Y N Unquantifiable. N.A.
Excluded§§
Home Loans

Maine
S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws

Remaining
balance of the
loan, plus
High Rate, principal paid by
Sept. 13,
High Fee Y Y N the borrower, 119 Y
2003
Loans plus interest paid
to date, plus
attorneys’ fees
and costs.

Massachusetts

Three times
March 22, High Cost actual damages,
Y Y N 116 Y
2001 Home Loans plus attorneys’
fees and costs.

High Cost
Home Loans
Nov. 7, 2004 Y Y N Unquantifiable¶¶ NA
Mortgage Excluded
Loan

Nevada

Three times
actual damages,
Oct. 1, 2003 Home Loans N Y Y 268 N
plus attorneys’
fees and costs.

New Jersey Pre Amendment

Home Loan:
Amount required
Home Loan to extinguish
(MH, HI, borrower's
cashout liability under
Nov. 27, refinancings, loan (UPB), plus
Y N*** Y 196 N
2003 and junior total amount paid
liens (not by borrower in
simultaneous connection with
seconds)) the transaction,
plus attorneys’
fees and costs.

Covered Covered Home

Home Loan Loan: Amount
(MH and required to
junior liens extinguish
(not N Y Y borrower's 196 N
simultaneous liability under
seconds)) loan (UPB), plus
Nov. 27, 2003 attorneys’ fees
- July 5, 2004 and costs.

Covered Home
Loan: Amount
Covered
required to
Home Loan
extinguish
(Refinancings
N Y N borrower's 110 Y
only) Nov. 27,
liability under
2003 - July 5,
loan (UPB), plus
2004
attorneys’ fees
and costs.

High Cost Home

High Cost Loans
Y Y N Loan: N.A.
Home Loan Excluded
Unquantifiable.
S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws

New Jersey Post Amendment

July 6, 2004, Amount required

and to extinguish
Home Loan.
thereafter. borrower's
(MH, HI,
The liability under
cashout
amended loan (UPB), plus
refinancings,
act Y N*** Y total amount paid 196 N
and junior
eliminates by borrower in
liens (not
the "covered connection with
simultaneous
home loan" the transaction,
seconds))
category plus attorneys
from the law. fees and costs.

High Cost Loans

Y Y N Unquantifiable. N.A.
Home Loan Excluded

New Mexico

Refinance Home
Loans: Amount
required to
Home Loans reduce or
Jan. 1, 2004 (Refinancings N Y Y extinguish 108 N
only) borrower’s
liability, plus
attorneys' fees
and costs.

High Cost Home

Loans: Amount
required to
High Cost reduce or
Y Y N 110 Y
Home Loans extinguish borrow
liability, plus
attorneys' fees
and costs.

New York State

Loan rendered
High Cost void, plus
April 1, 2003 Y Y N 163 Y
Home Loans attorneys' fees
and costs.

North Carolina

Forfeiture of
Consumer interest charges,
Home Loans plus twice the
Oct. 1, 1999 N Y Y 275 N
(Refinancings interest paid, plus
only) attorneys’ fees
and costs.

Forfeiture of
interest charges,
High Cost plus twice the
Y Y Y 275 N
Home Loans interest paid, plus
attorneys’ fees
and costs.

Oakland, Loans
Home Loans Y N N Unquantifiable. N.A.
Calif. Excluded§§

High Cost Loans

Pending Y Y N Unquantifiable. N.A.
Loans Excluded§§
S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws

Ohio

Rescission of the
May 24, Covered loan, plus
Y Y N 37 Y
2002 Loans attorneys' fees
and costs.

Oklahoma

Remaining
balance of the
loan, plus
Subsection 10
principal paid by
Mortgage
Jan. 1, 2004 Y Y N the borrower, 119 Y
(Refinancings
plus interest paid
only)
to date, plus
attorneys’ fees
and costs.

Consumer Loan rendered

South Home Loans void, plus
N Y Y 196 N
Carolina (Refinancings attorneys' fees
only) and costs.

Loan rendered
High Cost void, plus
Jan. 1, 2004 N Y Y 196 N
Home Loans attorneys' fees
and costs.

Toledo, Ohio

Actual damages,
Pending Home Loans N Y N plus attorneys' 95 Y
fees and costs.

Loan rendered
Primary
West void, plus
Mortgage Y Y Y 196 N
Virginia attorneys' fees
Loans
and costs.

Loan rendered
Subordinate
June 4, void, plus
Mortgage Y Y Y 196 N
2002 attorneys' fees
Loans
and costs.

*A "Y" means that in Standard & Poor's opinion there are mitigating factors that successfully negate the subjectivity of
the law. An "N" means either (i) there are no mitigating factors or (ii) there are mitigating factors, but Standard & Poor's
does not believe the factors successfully negate the subjective standards. Some examples of mitigating factors are (i)
whether damages are imposed under the law, only if there is a “pattern or practice” of violating the law; (ii) if the law
requires the borrower to prove that a violation was committed “knowingly and intentionally”; (iii) if a law provides
objective standards for satisfying a repayment ability test or a net tangible benefits test; (iv) the litigation history of the
law; (v) procedural factors contained in a law, such as statutes of limitation, cure periods, rebuttable presumptions,
restrictions on affirmative and defensive claims against assignees; and (vi) any other factor that Standard & Poor’s
deems relevant. ¶See Appendix. §Sellers who wish to include Connecticut High Cost Home Loans will be required to
agree not to charge default fees in the Pooling and Servicing Agreement or other relevant document. **With respect to
Indiana Home Loans, it is unclear whether the phrase "a violation of law" set forth in the Act, refers to a violation of the
Act itself, a violation of TILA, or a violation of any other law, state or federal. Given this lack of clarity, it is not feasible to
review all laws to determine whether such laws have clear and objective standards for compliance.¶¶With respect to
Massachusetts High Cost Home Mortgage Loans and Indiana High Cost Home Loans that violate their respective
states' Acts, assignee lliability cannot exceed amounts to reduce or extinguish the borrower's liability, plus amounts to
recover costs, plus attorneys fees and costs. However, the Acts also suggests that if these types of loans were
originated in violation of any other law, assignees may be subject to unquantifiable liability under any such applicable
law. Since it is not feasible to ensure that all of these types of loans were originated in compliance with all applicapable
laws, they are excluded from Standard & Poor's rated transactions. §§As of the date of this publication, the ordinances
are pending.The loans will only be excluded if or when the ordinances become effective. ***Although the New Jersey
Home Ownership Security Act (the Act) does not contain any subjective prohibited practices applicable to home loans,
assignees of home loans that are MH or HI loans are liable under the Act in certain circumstances for all affirmative
claims and defenses that the borrower could assert against the seller of the MH or HI goods and services. This liability
S&P Releases Criteria Regarding OCC Rule on Preemption of State Anti-Predatory Lending Laws

could include breach of contract, tort or statutory claims, and is not limited to those arising under the Act.

N.A.—Not applicable. UPB—Unpaid principal balance. MH—Manufactured housing. HI—Home improvement.

Note: The following jurisdictions' anti-predatory lending laws were also reviewed by Standard & Poor's, but in Standard
& Poor's opinion, the laws in these jurisdictions do not have assignee liability: California (7/1/02); Chicago, Ill.
(11/13/00); Cleveland, Ohio (7/27/02; amended (1/15/03); Cook County, Ill. (6/16/01); Idaho (7/1/03); Maryland
(10/1/02); Michigan (12/23/02); Minnesota (1/1/03); Mississippi (7/1/02); Nebraska (9/3/03); New Hampshire (1/1/2005);
New York (Part 41) (10/1/00; with subsequent amendments); New York City, N.Y. (not effective); Pennsylvania
(7/25/02); Tennessee (7/1/2004); Texas (9/1/01; amended 9/29/03); Utah (5/3/04); Vermont (9/16/98); Virginia (3/22/01;
amended 3/16/03); Washington (7/27/03); and Wisconsin (2/1/05).

Appendix: Standard & Poor's Assumptions

In calculating the loss severities set forth in the Anti-Predatory Lending Law Update table above, Standard & Poor's
made the following assumptions (in practice, if an issuer desires to include loans governed by an anti-predatory lending
law in a Standard & Poor's rated transaction, Standard & Poor's will calculate the required credit enhancement at the
loan level based on the specific attributes of the loan):

● The loan amount is $100,000;

● The loan term is 360 months;
● The coupon on the loan is 9.0%; and
● The loan does not require the payment of points or fees.

In calculating the loss severities, Standard & Poor's made the following additional assumptions:

● If a law provides for a statute of limitations and the statue of limitations is shorter than the timeframe set forth in
the assumptions set forth below, the statute of limitations in the law controls. Otherwise, the timeframes in the
assumptions set forth below govern;
● If a law provides for the remedy of rescission, Standard & Poor's assumed the loan has been outstanding for
120 months (10 years) at the point the borrower seeks rescission. The securitization issuer then must return to
the borrower all interest and costs paid to date by the borrower on the loan, and the borrower must pay the
securitization issuer any unpaid principal balance on the loan;
● If a law provides that a loan may be rendered void, or words to like effect, Standard & Poor's assumed the loan
has been outstanding for 120 months (10 years) at the point the loan is rendered void. The securitization issuer
then must return to the borrower all payments received in connection with the loan (including principal and
interest), and the securitization issuer has no right to collect or receive any additional principal or interest
payments on the loan;
● If a law provides for "extinguishment of the borrower's liability," or words to like effect, Standard & Poor's
assumed the loan has been newly originated and has been outstanding for less than one month;
● If a law provides for actual damages, Standard & Poor's assumed the loan has been outstanding for 120 months
(10 years) and damages are equal to all of the interest paid to date;
● Attorneys' fees and costs are set at 10% of the unpaid principal balance of a loan;
● Any requirements for complying with safe harbors set forth in a law have not been satisfied;
● The securitization issuer has not personally participated in the making of any loan included in a rated pool;
● There is no recourse against prior sellers of the loan; and
● Class action damages are multiples of the individual loan credit enhancement requirements.

Where alternative remedies or above listed assumptions could apply, Standard & Poor's defaults to the remedy that
reflects the worst-case scenario.

Copyright (c) Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.