S&P Changes Criteria for 'Predatory' Loans

Based on a study of over 40 federal, state, and municipal anti-predatory-lending laws, Standard & Poor's has decided to require additional credit enhancement for loans governed by such laws in 12 states and the District of Columbia and that are included in mortgage-backed securities it rates.For some of the "covered loans" and "high cost home loans," S&P said the risk for potential assignee liability may exceed the original principal balance of the loan. S&P said the state laws contain subjective or unclear standards for determining whether a loan is "predatory," including poorly defined or undefined net-tangible-benefit and repayment ability tests. The credit enhancement is based on the assessment of potential losses to the securitization and the number of lawsuits likely to be filed against the issuer, the rating agency said. "Our new criteria and study will further clarify the credit risk posed by some of these loans and help investors become more familiar with the issue of assignee liability," said Joanne Rose, executive managing director of S&P's structured finance group. The affected states are Arkansas, Ohio, Colorado, Florida, Georgia, Illinois, Maine, Massachusetts, New Jersey, New Mexico, New York, and Oklahoma. S&P can be found online at http://www.standardandpoors.com.