The Chicago city ordinance establishing mortgage lender liability for vacant buildings that are caught in the foreclosure process will be credit negative for RMBS deals, Moody's Investors Service said.   The rating agency said that lender liability laws increase mortgage lending transaction costs, which will rise significantly if this ordinance inspires similar laws in other parts of the U.S.

"Unless future [RMBS] pools exclude poor credit quality borrowers who are likely to end up in foreclosure, lender liability laws of this kind are credit negative," said analysts in a Moody's report.   The new Chicago city ordinance broadens the definition of the owner of vacant buildings and in doing so picks up mortgage lenders and assignees, such as RMBS securitizations.

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