Citing GFLA, Moody's Hikes Scrutiny of Liability

Moody's Investors Service has announced that it will give heightened scrutiny to investor liability for securitized residential mortgages as a result of the Georgia Fair Lending Act.The act, which affects "high-cost" loans and subprime lending, has made the risk of including such loans in mortgage-backed securities deals "prohibitively high," the rating agency said, because it allows "potentially unlimited punitive damages" and extends liability to loan assignees such as securitization trusts. Moody's added, however, that "contemplated revisions to the act could reduce risks to securitization trusts and eliminate burdens that have effectively precluded the origination of certain loans in the state." The announcement by Moody's followed a recent decision by Standard & Poor's not to rate any structured finance deal that contains conforming-balance mortgage loans or manufactured housing loans covered by the Georgia law. Many lenders have exited the state since enactment of the GFLA. The Office of Thrift Supervision recently decreed that federal law pre-empts certain provisions of the act, which means federally chartered thrifts operating in Georgia will not be subject to those provisions. Moody's can be found online at http://www.moodys.com.