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Fitch Sees Strong Compliance with 'High Cost' Rules

Based on results of the transaction loan sampling over the past 22 months, Fitch has determined that there has been excellent compliance with Fitch's high-cost loan criteria. Effective immediately, Fitch will no longer require third-party reports for rated transactions at the time of closing for loans originated in New Jersey, New Mexico, Kentucky, Massachusetts and Indiana.

The ratings agency said compliance systems have become a critical component of the underwriting and quality-control process. The revisions Fitch has made to rating residential mortgage-backed securities recognizes the progress the industry has made managing compliance with the myriad of anti-predatory laws and regulations, according to Fitch.

Kevin Cuff, president of the Massachusetts Mortgage Bankers Association, said the industry is still waiting to see how the new Massachusetts law will affect the market since it has only been in place for two months. "Fitch is recognizing how we all feel in the state. We're in a wait-and-see period to see how compliance will go. To see if it's effective and to make sure there's consumer protection while continuing to provide adequate access to credit for consumers. No one is throwing their arms up and saying people are leaving the state."

Fitch previously said the laws in these states could potentially expose RMBS issuers to unlimited assignee liability for damages resulting from high-cost loans. It has been the agency's policy to review the results of an analysis of the sample of the loans conducted by an unaffiliated third party.

Fitch said it will continue to review an originator's compliance process for identifying loans that are high cost as defined by state, federal and local laws. Additionally, Fitch will review an originator's ability to make use of any safe-harbor provisions that may be available.

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