S&P Revises Prepay Penalty Criteria

Standard & Poor's Ratings Services has announced that it is revising the "form of comfort" it will request for the securitization of prepayment penalties.For transactions closing on or after July 1, the rating agency will request a representation and warranty that the prepayment penalties in the deal are enforceable and were originated in compliance with applicable federal, state, and local laws. For net interest margin securities, the reps and warranties should be made in the documents for the underlying mortgage-backed securitization, S&P said. "As with all other representations and warranties relating to origination and enforceability matters, S&P will rely on issuers to stay informed as to legal requirements governing prepayment penalties," the rating agency said. S&P noted that under an Office of Thrift Supervision rule scheduled to take effect July 1, certain non-federally chartered mortgage lenders will no longer have federal pre-emption protection in charging prepayment penalties, but will be subject to state and local laws regarding the charging of such penalties.