Non-Agency MBS

Browse articles from all of our Newsletters related to Non-Agency MBS.

December 12, 2014 - Inside MBS & ABS

2015 Looks to Be Another Slog for Non-Agency MBS With More Volatility, Big GSE Footprint

Supporters of the non-agency residential MBS market will have plenty of heavy lifting to do next year, as they face an anticipated increase in volatility for some deals and a continued dominating presence in the broader market by Fannie Mae and Freddie Mac, among a host of challenges. But at least there’s some degree of regulatory certainty for the market now, and it’s likely that opportunities will emerge for savvy investors to snap up some extra yield, according to a consensus of Wall Street analysts who cover the space. Analysts at Fitch Ratings expect to see the continuation of a slow recovery for the non-agency MBS space in 2015. “The recovery in primary U.S. RMBS issuance remains anemic as the industry continues to face challenges including continued government-sponsored enterprise dominance, more attractive financing alternatives such as whole-loan sales, new mortgage regulation, and a weak AAA investor base,” Fitch analysts said in a 2015 outlook piece. Also, despite the industry’s renewed efforts led by the Structured Finance Industry Group to resolve the absence of necessary structural reforms after the financial crisis, progress is...


December 12, 2014 - Inside MBS & ABS

San Francisco Puts Eminent-Domain Talks on Hold Pending Results of a Study of ‘Joint Powers Authority’

The City of San Francisco has delayed a proposed partnership with Richmond, CA, to use eminent-domain authority to forcibly acquire distressed mortgages out of non-agency securitization trusts, opting instead to study the impact of such an agreement as well as other alternatives to assist underwater homeowners. Opposition by the San Francisco City Controller and the mortgage banking industry has forced John Avalos, a member of the city’s Board of Supervisors, to scale back his partnership proposal. Avalos laid out...


December 12, 2014 - Inside MBS & ABS

FINRA Set to Propose ‘Conservative and Measured’ Increase to Transparency on Pricing of MBS Trades

The Financial Industry Regulatory Authority will soon propose increasing transparency on trading of certain MBS, but officials say it won’t the market. Late last week, the FINRA board of governors authorized issuance of a regulatory notice soliciting comment on a proposal to amend rules for Trade Reporting and Compliance Engine, or TRACE. The proposal would provide for public dissemination of transaction information in real time for deals valued under $1 million, and in aggregate weekly and monthly reports for transactions valued at $1 million or more. FINRA Chairman and CEO Rick Ketchum said...


December 5, 2014 - Inside Nonconforming Markets

Little Help for Non-Agency Market from FHFA

Proponents of the non-agency market have seen little help in recent actions by the Federal Housing Finance Agency. The FHFA continued its practice of maintaining high-cost loan limits for the government-sponsored enterprises and the FHFA’s strategic plan puts an emphasis on “preserving and conserving” the GSEs’ assets. Last week, the FHFA announced that conforming loan limits for 2015 will be largely unchanged compared with loan limits for 2014. Loan limits will increase ...


December 5, 2014 - Inside Nonconforming Markets

Few Delinquencies on New Jumbo MBS

Jumbo mortgage-backed securities issued in recent years continue to perform exceptionally well, according to Moody’s Investors Service. The rating service pointed to 10 jumbo MBS issued in 2012 and 2013 by Redwood Trust as having built up credit enhancement on the senior bonds due to a low level of delinquencies. “An analysis of 10 transactions suggests that the low delinquency rate will continue as a result of the improving housing market, even as prepayment rates have remained low ...


December 5, 2014 - Inside Nonconforming Markets

GSE Exemption from Risk Retention a Concern

Proponents of the non-agency market are concerned that the final rule recently issued by federal regulators setting risk-retention requirements for certain securitized mortgages includes an exemption for Fannie Mae and Freddie Mac. Beginning in late 2015, risk-retention requirements for residential mortgages will apply to newly issued non-agency mortgage-backed securities collateralized by loans that don’t meet standards for qualified mortgages. Issuers or lenders contributing to ...


December 5, 2014 - Inside Nonconforming Markets

Jumbo MBS Loses Allure for Chimera

Chimera Investment emerged from years of accounting issues with an ability to return to the new-issue jumbo mortgage-backed security market. However, the real estate investment trust has focused its new investment strategy on agency MBS as well as multifamily activity and a unique restructuring of vintage non-agency MBS. Matthew Lambiase, president and CEO of the real estate investment trust, said the returns offered by new jumbo MBS aren’t currently attractive. “The economics are ...


December 5, 2014 - Inside Nonconforming Markets

MBS Investors Eye Transferring Risk More Fairly

One of the chief concerns among some top institutional investors in the non-agency residential mortgage-backed securities market is coming up with a way to price the risks of poorly underwritten or serviced mortgages more effectively. The objective is to price deals so the costs associated with an origination or servicing failure will be more appropriately assigned to those responsible for the defect. During a recent industry conference, a managing director at ...


December 5, 2014 - Inside Nonconforming Markets

Goldman Returns to Non-Agency MBS Market

Goldman Sachs teamed with EverBank Financial to issue a unique jumbo mortgage-backed security last week, its first jumbo MBS since the financial crisis. The $282.80 million GS Mortgage-Backed Securities Trust 2014-EB1 received AAA ratings with credit enhancement of 8.35 percent on the senior tranche. All of the loans in the deal are hybrid adjustable-rate mortgages originated by EverBank. Some 7.9 percent of the ARMs have a 10-year interest-only period. The deal marked a shift ...


December 5, 2014 - Inside MBS & ABS

Multiple Negative Factors Contributing to Lack Of Demand Among Non-Agency RMBS Investors

Seven years after the financial crisis, market demand for non-agency residential MBS remains feeble, at best – mostly because of higher yields elsewhere, convexity risk concerns, bond liquidity and pricing and missing structural reforms, industry participants say. “Even with the modest amounts of RMBS issuance that we’re seeing, the market is still struggling to digest those securities. We saw that last year and in the beginning of this year. So the question is: what’s driving that lack of demand?” said Rui Pereira, managing director at Fitch Ratings, during a panel discussion at a residential MBS reform symposium sponsored by the Structured Finance Industry Group and Information Management Network in New York City last month. In advance of the public discussion, Pereira queried...


December 5, 2014 - Inside MBS & ABS

Program Managers Seen as Helpful for MBS Backed By Nonperforming Loans, Though Conflicts Exist

Non-agency MBS backed by nonperforming mortgages that include a program manager benefit from the unique oversight provided by the manager, according to Moody’s Investors Service. However, there are concerns that in some instances the program manager’s interests may conflict with those of senior bondholders. Moody’s said program managers typically set performance targets and monitor servicers’ progress at the loan level, adopt foreclosure strategies that reduce timelines and expenses and direct servicers’ loss mitigation strategies. The managers are more common on non-agency MBS backed by nonperforming loans than on non-agency MBS backed by newly originated mortgages. Program managers are...


December 5, 2014 - Inside MBS & ABS

Half of All Currently Performing Mortgages Backing Non-Agency MBS Set to Experience Payment Shock

The relatively strong performance of mortgages in vintage non-agency MBS could be disrupted by interest rate resets and the expiration of interest-only periods, according to analysts at Fitch Ratings. Roughly half of all performing first-lien mortgages in non-agency MBS will be exposed to monthly payment increases during the next five years, Fitch said in a report released this week. The rating service determined that if a borrower’s monthly payment increases by 35 percent, the probability of default for the borrower doubles. “The product that’s going to be most affected is...


November 26, 2014 - Inside MBS & ABS

Court Victories for Homeowner Associations May Heighten Risk in Non-Agency MBS, Provide More Legal Clarity

Recent court rulings in Washington, DC, and Nevada allowed foreclosures brought by homeowner associations over unpaid dues to extinguish mortgage liens, increasing the risk of loss for investors in non-agency MBS and single-family rental securitizations, according to Moody’s Investors Service. Although both jurisdictions are relatively small in the grand scheme of things, other courts could adopt the same interpretations, the rating service said. Nevada has already seen some 1,000 similar cases, and more homeowner and condo associations are like to bring similar lawsuits. In Nevada, the court decided...


November 26, 2014 - Inside MBS & ABS

A Handful of Critical Impediments Block Return To Healthy U.S. RMBS Market, Sector Experts Say

The most significant blockages to the return of a healthy and sustainable non-agency residential MBS market in the United States are low volume issuance, regulation, weak AAA demand and missing structural reforms, according to top market professionals. “What’s holding back the recovery?” asked Rui Pereira, managing director at Fitch Ratings, during a panel discussion at a residential MBS reform symposium sponsored by the Structured Finance Industry Group and Information Management Network in New York City earlier this month. “Other sectors have rebounded and we’re starting to see new asset classes emerge. And yet, we’re seeing very little momentum in our market. So the question is, what’s stalling the RMBS recovery?” In the run-up to the discussion, Pereira polled...


November 21, 2014 - Inside Nonconforming Markets

News Briefs

The Consumer Financial Protection Bureau proposed new servicing requirements this week. Among other changes, the federal regulator proposed requiring servicers to offer loss mitigation to borrowers that have received a loan mod but are in danger of re-default. The CFPB’s servicing rules currently require a servicer to evaluate a borrower for loss mitigation only once during the life of the loan. The proposed rule would also set requirements for ... [Includes three briefs]


November 21, 2014 - Inside Nonconforming Markets

FirstKey Steps Up as Jumbo MBS Issuer

FirstKey Mortgage, a jumbo conduit indirectly owned by funds managed by Cerberus Capital Management, is set to issue its first jumbo mortgage-backed security. FirstKey ramped up its jumbo activity in the past year and to this point has aggregated loans for inclusion in jumbo MBS from other issuers, including WinWater Home Mortgage, another relatively new jumbo MBS player. The $285.98 million FirstKey Mortgage Trust 2014-1 is set to receive AAA ratings ...


November 21, 2014 - Inside Nonconforming Markets

SFIG Works on Due-Diligence Disclosure Issues

The latest “green papers” in the Structured Finance Industry Group’s RMBS 3.0 standards-setting project focus on due-diligence disclosures for investors in non-agency mortgage-backed securities. The SFIG noted that potential investors in non-agency MBS are particularly interested in findings conducted by third-party due-diligence firms before a security is issued. The SFIG proposed a model form that would disclose an “extract” of due-diligence findings to investors ...


November 21, 2014 - Inside Nonconforming Markets

MBS Investors Seek Protection, Transparency

As leading figures in the secondary market continue their efforts to reboot the non-agency mortgage-backed securities sector, attracting private capital remains the single most critical factor in the equation. However, during a recent industry conference, institutional investors made it clear that in order for them to return, the market’s infrastructure will need to provide stronger protections, enhanced transparency and an improved ability to respond when a deal starts to go sour ...


November 21, 2014 - Inside Nonconforming Markets

Treasury Sees Multiple Sponsors, SFIG Standards in ‘Benchmark’ Jumbo MBS

The benchmark non-agency mortgage-backed security that the Treasury Department is organizing will vary significantly from recent non-agency MBS. Michael Stegman, counselor on housing finance policy to the Treasury, revealed new details about the planned transaction last week in New York City at the Private-Label RMBS Symposium hosted by the Structured Finance Industry Group and Information Management Network. Stegman said the benchmark non-agency MBS will ideally be ...


November 21, 2014 - Inside MBS & ABS

SG Americas’ Non-Agency MBS Trader Fired, Sanctioned by FINRA For Pre-Arranged Trading

The Financial Industry Regulatory Authority revealed recently that a non-agency MBS trader at SG Americas Securities was fired by the firm and sanctioned by FINRA for pre-arranged trading. The self-regulatory organization said that on multiple occasions from 2001 through 2013, Yimin Ge entered into an agreement with counterparties at other institutions to engage in pre-arranged trading. FINRA said such deals violate the Securities Exchange Act as well as FINRA’s rules. The pre-arranged trades involved...


November 21, 2014 - Inside MBS & ABS

RMBS Market Optimists See Some Key Positives, But Pessimists Cite Shriveled Levels of Issuance

Top mortgage finance professionals and government officials gathered in New York City last week to discuss the prospects for the non-agency MBS market, and their assessments were all over the board, a sign of the uncertainty many participants have about trying to resuscitate a stagnant sector. “It’s been seven years since the financial crisis, and certainly a lot of things have changed,” said Rui Pereira, managing director at Fitch Ratings, during a panel at the non-agency MBS reform symposium sponsored by the Structured Finance Industry Group and Information Management Network. He then cited...


November 21, 2014 - Inside MBS & ABS

Banks Report Modest Increase in MBS Holdings During 3Q14, Biggest Jump in Non-Agency MBS

Banks and thrifts held a combined $1.535 trillion of residential MBS at the end of September, a modest 0.6 percent increase from the previous quarter, according to a new Inside MBS & ABS analysis of bank call reports. Bank MBS holdings had spiked higher in the first quarter of this year, only to fall back in the following period. Compared to a year ago, the industry’s aggregate MBS portfolio was up 1.4 percent. Bank and thrift MBS holdings first crossed...[Includes two data charts]


November 14, 2014 - Inside MBS & ABS

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...


November 14, 2014 - Inside MBS & ABS

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...


November 14, 2014 - Inside MBS & ABS

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...


November 7, 2014 - Inside Nonconforming Markets

Chase Tops Bank Holders of Non-Agency MBS

JPMorgan Chase had the largest amount of holdings of non-agency mortgage-backed securities – by far – among banks and thrifts at the end of the second quarter of 2014, according to a new ranking and analysis by Inside Nonconforming Markets. Chase held $44.53 billion in non-agency MBS at the end of June, accounting for 34.5 percent of all non-agency MBS held by banks and thrifts. TD Bank, the second-ranked holder of non-agency MBS, had a ... [Includes one data chart]


November 7, 2014 - Inside Nonconforming Markets

Non-QM Originations Off to a Slow Start

Originations by nonbanks of loans that don’t meet standards for qualified mortgages are off to a slow start, according to industry participants. “There is obviously a lot of noise in the area, a lot of announcements about people getting involved. And from what we have seen, there is nothing of any size and replicable flow that seems readily securitizable,” Michael Commaroto, CEO of Apollo Residential Mortgage, said this week during a call with investors. He said ...


November 7, 2014 - Inside Nonconforming Markets

Strong Demand for Jumbo Originations From Both Banks and MBS Investors

Pricing for jumbo mortgage-backed securities has improved in recent months, prompting an increase in issuance from some firms, but bank demand remains robust. “Although the difference has narrowed, our whole-loan sale execution for most jumbo loans continues to be more attractive than our securitization execution as a result of strong demand from banks,” Brett Nicholas, president of Redwood Trust, said this week during a call with investors. In the third quarter of 2014, Redwood issued ...


November 7, 2014 - Inside MBS & ABS

BNYM Looking to Increase its Master Servicing In Non-Agency MBS Market; Wells Dominates

Bank of New York Mellon is looking to increase its master servicing activity on residential mortgages, according to officials at the firm that acquired the master servicing unit from JPMorgan Chase in October 2006. However, BNYM is up against stiff competition, including Wells Fargo, a dominant presence in master servicing for non-agency MBS. BNYM is focusing on growth opportunities from managing new funds in traditional residential mortgages as well as new loan types, according to a recent report by Fitch Ratings. In September, Fitch downgraded BNYM’s master servicer rating due to compliance issues, organizational changes and low activity in recent years. The firm has...


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It will give our business a big boost as there is a lot of pent up demand for the product.
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