Due to the proliferation of predatory lending legislation, Standard & Poor's announced at press time last week that it would require increased credit enhancement going forward for mortgage securitizations backed by loans in 15 municipalities. While the move has no impact on outstanding transactions, credit enhancement for future securitizations could increase by a variable amount, depending on the number of impacted loans in each pool, foreclosure frequencies, and the jurisdictional distribution of the loans.
"Because of the proliferation of [predatory lending] laws, S&P anticipates that an increased number of loans governed by these laws are likely to be included in transactions it is asked to rate," S&P says in its trade release on the topic. "For some of these loans, the potential assignee liability may exceed the original principal balance of the loan. This assignee liability has to be appropriately factored into the rated transactions. The risk increases for laws that have subjective standards, such as net tangible benefit or vague repayment ability tests."