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S&P Sees Few 'High Cost' Mortgage Loans

Through an internal study, Standard & Poor's has evaluated the impact that anti-predatory lending statutes have had on the funding of high-cost loans through the capital markets and found that only 0.01% of the U.S. residential mortgage loans it rated during 2004 were high cost.

Given that only $87 million of the approximately $758 billion rated in 2004 were high-cost loans, Standard & Poor's said it is clear that the capital markets are not financing the originations of such loans.

"The big thing is the incident of high-cost loans were very small, the majority of which were Section 32 loans, mainly in second-lien high LTV, scratch and dent, and a small amount of subprime within this 0.01%," said Susan Barnes, managing director of the residential mortgage group at S&P.

Since the anti-predatory lending legislation that has become effective over the past couple of years generally targets high-cost loans, it would appear that such legislation has limited the origination of these loans, Ms. Barnes said. However, S&P is unable to determine if these loans are being originated and not being included in securitizations.

"We support these laws that try to stomp out predatory lending. If people were questioning if high-cost loans are originated through the secondary market, the amount is so small, the answer to us is 'no.'"

Nanci Weissgold, a partner with the Washington law firm of Kirkpatrick & Lockhart, said the results of the S&P study aren't surprising, given the risk of assignee liability.

"Little wonder that the capital markets are refusing to purchase loans where they are legally liable for the sins of the originator of which the purchasers were unaware at the time of purchase," she said.

Ms. Weissgold said it is consumer groups who often push the envelope for these state laws.

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