Moody's to Rate Deals Backed by MA Loans

Moody's Investors Service has announced that it will continue rating residential mortgage-backed securities backed by Massachusetts home loans originated after Nov. 7, when the state's anti-predatory-lending law went into effect.But because of the subjective nature of the law's "borrower's interest" standard, Moody's said it is concerned that nonexempt home loans may increase risk to RMBS investors. The RMBS issuer must represent and warrant that the loans were originated in compliance with the act (the Massachusetts Act Prohibiting Certain Practices in Home Mortgage Lending) and agree to repurchase any loans made in violation of the law. To achieve a high level of protection for a securitization, the issuer should have a low exposure to loans in Massachusetts and other jurisdictions with high-cost loan restrictions, Moody's said. The legislation also expands existing anti-predatory-lending regulations, which may also pose an additional risk to RMBS structures. The new law prohibits practices in connection with high-cost loans originated in Massachusetts, including charging certain fees and providing for balloon payments or negative amortization. It also requires the lender to reasonably believe that the borrower will be able to make the loan payments. Moody's can be found online at http://www.moodys.com.