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Volume 2015 - Number 3

January 23, 2015

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2014 Ranked as Strongest Post-Crisis Year in ABS Issuance Despite Fourth-Quarter Slowdown

A total of $185.32 billion of non-mortgage ABS were issued in 2014, the highest annual production level for the market since 2007, according to a new Inside MBS & ABS analysis and ranking. ABS issuance was up 12.0 percent from the prior year, with solid gains in three of the market’s key sectors: auto finance, credit cards and business loans. The weakest link was the student loan ABS market, where annual production fell 25.4 percent from 2013 and slipped to its lowest level since 1999. Vehicle finance deals were...[Includes two data charts]

S&P Settles Certain MBS Rating Issues, But Regulators Hint More Actions Are Pending

Standard & Poor’s agreed this week to a settlement with the Securities and Exchange Commission and two state attorneys general regarding ratings on commercial MBS and non-agency MBS. Regulators suggest that further actions involving the ratings services are in the works, likely including a much larger settlement with S&P regarding activity before the financial crisis. S&P’s settlement this week involved post-2010 activity. The rating service agreed to pay the SEC and attorneys general for New York and Massachusetts more than $77 million. S&P will also take a one-year “timeout” from rating conduit/fusion commercial MBS. “They lied...

Despite the Loss of Three Top Executives, Cerberus-Controlled FirstKey Aims to Grow

FirstKey Mortgage, which has big plans in the non-agency space that include lending outside the qualified mortgage box and securitization, late this week saw the departure of three of its top executives, including CEO Bruce Witherell. According to industry officials familiar with the situation, FirstKey’s parent company, Cerberus, was beginning to take more of an active role in how the lender/issuer was being operated, a situation that didn’t sit well with some senior executives at the nonbank, including Witherell. Witherell and FirstKey executives Randy Sidhu and David Essex have accepted...

Residential Mortgage REIT Profitability Rebounded in 2014. But Is the Party Over?

Real estate investment trusts focused on the residential mortgage market had a stellar year in 2014, returning 19.4 percent to investors, a nice comeback from the year before when performance was measured at negative 12.7 percent. According to figures compiled by the National Association of Real Estate Investment Trusts, commercial financing REITs fared a bit worse, returning 14.5 percent compared to a mouth-watering yield of 41.8 percent in 2013. But now both sectors face...

Experts Shrug Off Rising Delinquencies on Subprime Auto Loans Resulting From Looser Underwriting

Issuers of auto ABS are loosening underwriting standards and delinquencies on subprime auto loans are increasing, but industry analysts suggest that there is little cause for concern. Performance remains much stronger than the delinquencies seen during the financial crisis and issuers are unlikely to loosen underwriting to the extent seen in the run-up to 2008. For independent finance companies, 60+ delinquencies increased by 13.7 percent in the past year, from 1.82 percent in the third quarter of 2013 to 2.07 percent in the third quarter of 2014, according to the latest data from Experian Automotive. Independent finance companies focus primarily on lending to subprime borrowers, and their delinquency trends outpaced any increase in delinquencies for other types of lenders that lend primarily to prime borrowers. Peter McNally, a vice president and senior analyst at Moody’s Investors Service, said...

SCOTUS Ruling in TILA Rescission Case Could be Trouble for Non-Agency MBS, SFIG Brief Suggests

Last week, the U.S. Supreme Court unanimously ruled that the Truth in Lending Act only compels a borrower to file a written notice within three years of consummation in order to rescind a mortgage if the lender fails to provide the required disclosure, instead of formally filing a lawsuit within that period. This could spell bad news for the non-agency RMBS space, according to an amicus brief the Structured Finance Industry Group filed with the high court in the case, Jesinoski v. Countrywide Home Loans, Inc. The first problem SFIG noted with the position that the SCOTUS eventually upheld is that it will have a chilling effect on non-agency MBS. “A determination that mere notice is sufficient to effect a rescission would reverberate through all segments of the RMBS market, creating significant hurdles for originators, issuers, ratings agencies, servicers, and trustees alike, while breeding doubt among investors regarding the value of future and already-issued private-label RMBS,” said the trade group. That’s...

FDIC Proposes Clarification on Interplay Between Risk Retention and Securitization Safe Harbor

The Federal Deposit Insurance Corp. took an action this week aimed at reducing confusion regarding the interplay between the banking regulator’s securitization safe harbor and risk-retention requirements recently set by federal regulators. Under the FDIC’s securitization safe harbor, if certain requirements are met, the FDIC, in its capacity as receiver or conservator of an insured depository institution, won’t recover or reclaim securitized assets when exercising its authority to repudiate contracts. In 2010, the FDIC added a risk-retention requirement to the safe harbor. For securitized assets to qualify for the FDIC’s safe harbor, sponsors of deals issued in 2011 and beyond must retain...

Ginnie Aims for Spring Introduction of New Scorecard for Measuring Issuer Performance

Ginnie Mae plans to launch a performance-measuring tool, Issuer Operation Performance Profile (IOPP), to enable issuers to see how they stack up to the agency’s standards and make improvements. The agency did not specify a launch date but said the tool will be available “in early 2015.” It will be used to compare an issuer’s operations and defaults with those of its peers, along the lines of FHA’s compare ratio for lenders in Neighborhood Watch. The issuer scorecard is...

MBS & ABS Issuance at a Glance

One page of issuance data.


The FHA is cutting its annual premium by 50 basis points. How much of a difference will this cut make in your FHA business?

Not much at all—maybe 10 percent at best.
Modestly. We expect a 10 percent to 25 percent gain in applications.
This is a real game changer, 25 percent or better.
Hard to say. This cut may just steal business away from the new Fannie/Freddie 97 LTV effort.

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