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Lack of Details Leaves Non-Agency Market Guessing at Impact of Servicing Settlement

Reaction among non-agency participants regarding the settlement by five large bank servicers announced last week has been mixed. Investors are divided on what impact principal forgiveness loan modifications will have on non-agency mortgage-backed securities – largely because the settlement terms have not been settled yet. “Once the bank modifies their own portfolio loans, where it makes sense to reduce principal, there is a huge incentive to do the rest of the modifications using investor money,” warned Amherst Securities Group. “This stems from the fact that the servicers are able to use investor funds to satisfy their own claims. And the conflicts of interest are exacerbated because of the second liens ...

Investors Flock to Vintage Non-Agency MBS

With prices relatively low, vintage non-agency mortgage-backed securities have been a hot item in recent weeks. Some analysts suggest that the buying boom has already peaked and the collateral is overpriced again, though a significant amount of non-agency MBS is still available for sale. “The non-agency market has rebounded in 2012 after a poor second half of 2011,” according to analysts at Bank of America Merrill Lynch. The Federal Reserve’s two sales in as many months of Maiden Lane assets are as good an indicator as any that investor demand for non-agency MBS is strong ...

Subprime Performance Improves, Concerns Persist

The delinquency rate on subprime mortgages at the end of 2011 hit levels not seen since 2008, but analysts warn that subprime performance could worsen as borrowers are unable to refinance and negative equity increases. The seasonally adjusted delinquency rate for subprime mortgages fell to 20.8 percent at the end of 2011, according to the Mortgage Bankers Association. The rate has declined in each of the past seven quarters from a peak of 27.2 percent in the first quarter of 2010. However, a number of factors suggest that delinquency rates on non-agency mortgages will increase ...

REITs Seen as Source for Non-Agency Growth

Non-agency market participants and stock investors appear to be optimistic about the prospects for real estate investment trusts. REITs are positioned to absorb a portion of the agency share of mortgage origination activity, and investor interest in REIT stocks has increased recently. “REITs should definitely take a big part of the agency footprint,” said Michael Commaroto, president and CEO of Apollo Residential Mortgage, a hybrid REIT. Such REITs invest in both agency MBS and non-agency MBS, with agency MBS generally accounting for most of the investing portfolio ...

MBS Issuance Not Economic for Two Harbors

After making a splash with plans to issue a non-agency mortgage-backed security in 2011, officials at Two Harbors Investment have backed away from a potential new issuance, instead focusing on investing in vintage non-agency MBS. “We don’t want to do a securitization simply to do a securitization,” said Tom Siering, president and CEO of Two Harbors. “It simply must be good for shareholders.” During an investor presentation last week, Siering said returns on investments in non-agency MBS in recent months have been much greater than the returns the real estate investment trust would see from issuing its own non-agency MBS ...

PennyMac Increases Jumbo Correspondent Activity

PennyMac Mortgage Investment Trust is gradually ramping up its non-agency jumbo correspondent activity, with plans to expand even further in the coming years. “As the markets develop, one area that will become an increasing focus for PennyMac is non-agency jumbo loans,” said Stanford Kurland, chairman and CEO of the real estate investment trust. PennyMac had $15.0 million in jumbo correspondent originations in the fourth quarter of 2011, up slightly from $13.0 million the previous quarter and $7.0 million in the second quarter of 2011 ...

Two Servicers Account for Half of PRA Mods

Activity in the Home Affordable Modification Program’s Principal Reduction Alternative is heavily concentrated, according to an analysis by Inside Nonconforming Markets. Bank of America and Wells Fargo combined account for 51.4 percent of the non-agency principal reduction mods, based on new disclosures by the Treasury Department. The servicers’ PRA activity is outsized even compared with their overall non-agency HAMP activity. BofA and Wells combined account for 33.6 percent of active non-agency HAMP mods ... [Includes one data chart]

Non-Agency Servicing on Track for Standardization

The $25.0 billion servicing settlement is just the latest step toward standardized servicing regulation, according to industry analysts. Many non-agency servicers have taken major steps to prepare for an overhaul of servicing regulation, though increased costs are a concern. “It appears that non-agency MBS servicers have already made significant operational changes in an effort to address process deficiencies identified in this settlement and by regulators,” Fitch Ratings said. As with federal consent orders several servicers agreed to last year ...

News Briefs

American Home Mortgage Servicing and Carrington Capital Management agreed last week to settle a lawsuit regarding alleged improper servicing by American Home on $128.1 million in non-agency mortgage-backed securities owned by Carrington. The lawsuit was filed in 2009 by Carrington, which claimed American Home had conducted “fire sales” of delinquent properties in the securities in an effort to repay debt. At the time, American Home denied the charges. The terms of the settlement were not released. [Includes two briefs]

Subprime Volume Indicators and ABX Prices

A half page of subprime and jumbo data.