Last week, RBS Greenwich Capital announced that it will not purchase or provide financing for high-cost, covered, manufactured housing, or certain refinance loans originated in New Jersey on or after Nov. 27 unless the state's soon-to-be implemented anti-predatory lending law is amended.
Greenwich added that it may still buy and finance purchase money home loans as well as covered loans in New Jersey as long as these loans are not secured by manufactured housing or otherwise comply with the state's new law. The firm would also consider purchasing and financing non cash-out refinance home loans.
A report from Greenwich said that the New Jersey Home Ownership Security Act works the same way as the Georgia anti-predatory lending law that in it gives assignee liability relating to certain classes of mortgage loans. In other words, innocent buyers as well as assignees of certain loans may be held liable for all claims and defenses that borrowers could assert against the original lender, broker or any other relevant party, according to Greenwich.
But New Jersey's measure is different from most anti-predatory legislation in that it extends to home loans that are originated, assigned or arranged by a seller of manufactured homes or home improvements. And since the term "home improvements" is not really defined under the new law, cash-out refinance loans would probably be covered.
In reaction to the law's passing, Standard & Poor's has said that the only loans under the new act that it will accept in rated deals will be purchase money home loans, non-cash-out refinance home loans and purchase money covered loans that are not secured by manufactured housing. These mortgages could either be first or second liens. Fitch Ratings, on the other hand, is willing to accept a broader range of New Jersey loans in rated deals provided that certain due diligence provisions are followed.
Peter DiMartino from RBS Greenwich describes the market's reaction in the following way: "We believe that when the New Jersey act goes into effect later this month, the mortgage market will respond much as it did a year ago with respect to the Georgia act," he commented, adding that considering the importance of securitization, market participants will have to follow S&P's more rigid stance.
"We have already heard that some originators intend to stop originating loans in New Jersey," said DiMartino. "Such a market reaction likely will cause New Jersey to amend the New Jersey Act eventually, but there are no assurances that this will occur."