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Volume 2011 - Number 46

December 2, 2011

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Banks and Thrifts Continue Building Residential MBS Holdings – CMBS Investments Growing Even Faster

The combined holdings of residential MBS by banks and thrifts topped the $1.5 trillion mark for the first time ever during the third quarter, as depository institutions without a lot of great alternative investment options continued to plow money into the market. Banks and thrifts held a record $1.533 trillion in residential MBS at the end of September, up 2.8 percent from the previous quarter and 10.4 percent ahead of the same period in 2010. Banks and thrifts held a combined 23.2 percent share of the outstanding residential MBS in the market. The biggest...(Includes two data charts)

Credit Ratings Not Always Protected by Free Speech, Federal Court Rules in MBS Case

In a blow to ratings agencies, a federal court in New Mexico has ruled that the First Amendment does not necessarily protect ratings services from lawsuits filed by disgruntled MBS investors. Judge James Browning ruled that the characteristics of MBS issued by Thornburg Mortgage and the way the ratings were disseminated may preempt free speech protection. The suit dates back to the spring of 2009, when plaintiffs that include the Genesee County Employees’ Retirement System, Midwest Operating Engineers Pension Trust Fund and the Maryland-National Capital Park &...

Fannie, Freddie CEOs Urge Quicker Pace of GSE Reform From Congress; Companies Can’t Repay Taxpayer Draws

It would be better for the mortgage market, for taxpayers and for Fannie Mae and Freddie Mac if Congress did not dawdle in promulgating housing finance reform and clarified the future role, if any, the two government-sponsored enterprises will have, the CEOs of Fannie and Freddie told lawmakers this week. Testifying before the House Financial Services Subcommittee on Oversight and Investigations, Fannie CEO Michael Williams and Freddie CEO Charles Haldeman called on Congress to take action as the continued lack of clarity about Fannie and Freddie’s future is harmful to...

Pension Funds, Investors Settle MBS Suit Against Countrywide, BofA; AGs Intervene in Other Suit

Bank of America has settled two major securities fraud claims with various pensions funds and other investors in connection with Countrywide-related stocks and non-agency MBS. It also faces the prospect of a challenge by two state attorneys general, whose requests to intervene in another multi-billion dollar MBS case were granted by a New York federal court this week. The bank agreed to an undisclosed settlement amount with the California Public Employees’ Retirement System, the Government of Guam Retirement Fund and 14 other large pension and mutual fund investors. Accounting firm...

Bank Regulators Move to Strip References To Credit Ratings from Investing Regulations

Commercial banks will have to do more than just look at the credit rating on a security before deciding it qualifies as a potential investment under a proposed rule issued by the Office of the Comptroller of the Currency this week. The Federal Deposit Insurance Corp. is scheduled to consider a similar proposal next week. Under marching orders from the Dodd-Frank Act, bank regulators have been removing references to external credit ratings from a variety of regulations – even though banks themselves don’t agree with the change. Most commenters on earlier proposals from...

SEC Defends Citigroup Settlement as Best Possible, Impact of Judge’s Rejection Expected to Be Limited

The chief of enforcement at the Securities and Exchange Commission took issue with a U.S. District Court judge’s rejection this week of the agency’s proposed $285 million settlement with Citigroup over a collateralized debt obligation backed by MBS that went sour, and defended the deal as the best available course of action, given the restrictions under current law. Robert Khuzami, director of the SEC’s Division of Enforcement, responded to a ruling announced early this week by U.S. District Court Judge Jed Rakoff in Manhattan in which the judge rejected the multi-million-dollar...

Dealers Expect Another MBS Buying Spree at Federal Reserve in 2012

Most bond dealers expect the Federal Reserve to begin buying a substantial volume of MBS in an effort to stimulate an anemic economy, according to the results of a Bloomberg News survey of bond dealers. They project that the Fed could buy as much as $800 billion of MBS in 2012. The Fed would not respond to requests for comment regarding this plan, but the purchasing of MBS may be a part of a new round of quantitative easing for the market. Fed analysts claim that the agency’s first big MBS buying binge, between November 2008 and March 2010, helped push mortgage rates...

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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