Agency says assignee liability \"unquantifiable\"
By MortgageDaily.com staff
1/10/2005

Recently enacted high cost loan legislation has led one major agency to stop rating some pools of Indiana mortgages.

Fitch Ratings announced it will no longer rate RMBS pools that include Indiana "high cost" loans. The move is a result of Indiana's High Cost Home Loan Law, which became effective Jan. 1, 2005, and applies to residential owner-occupied Indiana mortgages meeting one of the high-cost home loan triggers.

Fitch determined the assignee liability for Indiana home mortgage loans is unquantifiable -- a component Fitch requires to rate RMBS transactions. The ratings agency pointed out it had previously disclosed that it would not rate transactions containing loans originated in jurisdictions with laws that could result in unquantifiable purchaser or assignee liability for predatory lending practices of an originator, broker or servicer.

Fitch said it will now expect sampling for all mortgages located in Indiana. In accordance with its previously published criteria, the number of loans to be reviewed in the random sample of Indiana mortgages should be the greater of 5 loans and 10% of the loans in the pool. If a high-cost home loan is discovered in the sample, then a review of every loan in the pool originated in Indiana is expected, the announcement said.

The two types of high-cost home loan triggers are the annual percentage rate test and the total points and fees test. The first is triggered when the APR exceeds the yield on U.S. Treasury securities with comparable maturities by 8% for first-liens and 10% for subordinate liens at the time of origination. The second test is triggered when the sum of the points and fees exceeds 5% of the total loan amount on loan of at least $40,000, or 6% on a loan of less than $40,000.

Indiana's anti-predatory lending law does not apply to loans made, acquired, or to be insured, guaranteed, purchased or funded by federal or state chartered institutions, Fitch reported, or loans in excess of the conforming limit.

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