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Volume 2014 - Number 43

November 14, 2014

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SFIG Releases Second Round of Consensus Standards Aimed at Restoring Confidence in Non-Agency RMBS

As part of its RMBS 3.0 initiative, the Structured Finance Industry Group this week released the second installment of its recommended best practices for the non-agency MBS market. New and revised material was released for each of the three major “work streams” in the project, which broadly cover: representation-and-warranty issues and repurchases; due diligence, data and disclosure; and the roles of transaction parties and bondholder communications. The 54 new pages released this week bring the cumulative work to about 125 pages, including appendices. In the reps-and-warranties section, new provisions cover...

Benchmark Transaction Could Integrate With RMBS 3.0 To Help Attract Private Capital, Treasury Official Says

A top Obama administration official told secondary market participants this week that the concept of a “benchmark transaction” could help the non-agency RMBS market overcome its feeble condition. Used in conjunction with the industry’s RMBS 3.0 project, such a mechanism could help clear away the rubble from the market’s collapse and attract big institutional investors that have largely refused to come back in from the sidelines. “The now widely recognized structural deficiencies in the legacy private-label securitizations that came to light during the financial crisis truly shattered the trust of market participants, with the result that almost seven years now after the collapse, this market is barely clinging to life,” said Michael Stegman, special counselor to the U.S Treasury for housing finance policy. “Concrete reforms are clearly needed to rebuild confidence and establish a resilient, sustainable architecture to bring back significant private capital to the U.S. housing market.” Stegman delivered...

Fannie, Freddie MBS Portfolios Will Continue Shrinking Following Profitable Third Quarter

Fannie Mae and Freddie Mac continued to trim their retained holdings of MBS and unsecuritized mortgages in keeping with their conservatorship mandate as the two government-sponsored enterprises each posted a profit during the third quarter of 2014. The two GSEs ended September with a combined $851.71 billion in mortgage-related holdings, down 2.4 percent from the previous quarter. Compared to a year ago, their combined mortgage portfolio was down 16.0 percent and down 46.5 percent from the $1.592 trillion the two firms held in the fourth quarter of 2008 shortly after being placed in government conservatorship. One of the conditions of the conservatorship the GSEs entered six years ago was...[Includes one data chart]

NCUA Sues Trustee While BofA, US Bancorp Agree to Settle Trustee Suit; Morgan Stanley, WIC Face Probes

The National Credit Union Administration this week sued Deutsche Bank National Trust Co., alleging the bank violated federal and state laws by failing to carry out its duties as trustee for 121 non-agency MBS trusts. According to the complaint filed in federal district court in Manhattan, Deutsche Bank failed to protect five corporate credit unions – U.S. Central, WesCorp, Members United, Southwest and Constitution – that purchased $140 billion in RMBS issued from the trusts between 2004 and 2007. The securities lost...

Freddie Mac Makes Progress on Securitizing ‘Re-performers’; An MBS Backed by NPLs?

Through the first nine months of 2014, Freddie Mac securitized $7.0 billion of re-performing and modified single-family loans, a figure that towers over its crosstown rival Fannie Mae. Since 2011, Freddie has issued roughly $12 billion in securities backed by re-performing loans. So what’s Fannie’s problem in this area? That’s hard to say. A spokesman for the government-owned mortgage giant said the company has yet to undertake any securitizations of formerly delinquent loans, and isn’t sure if or when it will. Then again, Fannie – unlike Freddie – has...

SEC Rule Ineffective Against Rating Shopping, CRAs Standing Firm on Rating Methodologies

Shopping for credit ratings is alive and well despite the laws and regulations that have been put in place to curb the practice, but so far credit rating agencies have not lowered their standards, according to Morningstar Credit Ratings. “Arrangers and issuers of structured debt continue to tightly control the selection of credit rating agencies,” Morningstar said in a recent analysis. But information quality and transparency fall short of investor expectations, and the general interests of the key stakeholders remain somewhat misaligned, the rating service said. Arrangers and issuers of residential MBS, non-mortgage ABS and commercial MBS continue...

DeMarco: Only Congress, President Can Abolish GSE Charters, Advance Lasting Housing Finance Reform

Fannie Mae and Freddie Mac and the government-sponsored enterprise model are flawed beyond repair, so expect comprehensive housing finance reform to remain stalled until lawmakers and the chief executive take action, according to the former head of the Federal Housing Finance Agency. Speaking at an American Enterprise Institute forum this week, former FHFA Acting Director Edward DeMarco, now a housing fellow at the Milken Institute, said the structure of the GSE conservatorships and the Treasury support agreement backing them requires Congressional intervention. “The answer to the question ‘what happens next?’ is...

MBS & ABS Issuance at a Glance

One page of issuance data.

Poll

What is it going to take to convince lenders to loosen the credit box (i.e., remove underwriting overlays)?

The recent rep and warranty changes announced by the Federal Housing Finance Agency should go a long way in protecting lenders from future buybacks and help expand mortgage credit.
There won’t be any significant elimination of underwriting overlays until the government stops seeking huge mortgage-related penalties and settlements from lenders.
There shouldn’t be any expansion of the mortgage credit box since looser underwriting is what caused the recent mortgage crisis.

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