Take Notes: Third-Party Loan Origination Legal Risks For U.S. Consumer Loan ABS Are Evolving

Third-party loan origination legal and regulatory risks in U.S. consumer loan securitizations have continued to evolve in recent years. Of note, once an originating bank transfers or assigns a loan to a non-bank partner, "valid when made" and "true lender" legal and regulatory risks can arise, which can include effectively asserting that the loan was never valid if a legal challenge was successful. We’re joined by analyst Ronald Burt to discuss how these risks could bring potential negative consequences for securitizations backed by loans originated through these arrangements, including a reduction in the interest rate on the loan, a voiding of the entire contract, or litigation and related costs. We also delve into how we assess them in our rating analysis of U.S. consumer loan ABS transactions.

Related:

• Assessing The Evolving Third-Party Loan Origination Legal Risks For U.S. Consumer Loan ABS