After 11 months of negotiations, the odds that the multistate attorneys general talks with most of the nation’s top mortgage servicers will yield any substantive, long-term fruit seem to shrink daily, as officials from two states – including one of the biggest – have decided to bail, in lieu of possible independent litigation. “I have lost confidence that the banks will bring to the table an agreement that properly holds them accountable for wrongful foreclosures,” said Massachusetts Attorney General Martha Coakley, one of two state AGs to withdraw from the negotiations last week, along with California AG Kamala Harris. “Because our office for some time has anticipated that result, we have begun preparing for litigation.

California. The state amended a number of its mortgage loan originator licensing provisions under the California Finance Lenders Law last week, including one amendment that permits applicants who have an expunged or pardoned felony conviction to obtain a license. The underlying crime, facts or circumstances can be considered when determining whether to issue a license. Another amendment permits a person exempt from the California Finance Lenders Law to register with the Commissioner of Corporations so as to sponsor one or more individuals required to be licensed under the SAFE Act if specific requirements are met.

Federal Housing Finance Agency. OIG Finds Room for Improvement. The FHFA recognizes how important it is to oversee Fannie Mae’s and Freddie Mac’s default-related legal services, but it needs to improve its capacity to identify new and emerging areas of risk, according to a new report released by the agency’s Office of Inspector General. Additionally, “FHFA does not have a continuous supervision plan or detailed examination guidance to govern its oversight of Fannie’s Retained Attorney Network, and it had not accomplished any targeted examinations of the RAN until it initiated a special review in late 2010, which has not yet been published,” the OIG said. Moreover, “FHFA also has not developed formal policies to address poor performance by law firms that have relationships – either directly through contract or through its loan servicers – with both enterprises to ensure that information is shared.”

Mortgage banking activity was one bright spot in an otherwise lackluster earnings period, according to a third quarter review by analysts at FBR Capital Markets. “Activity was up 35 percent from 2Q11 as we saw lower interest rates drive another refinance boom, whereby refinances accounted for almost 80 percent of all originations,” FBR said. The analysts expect originations and gain-on-sale margins to be up significantly from 2Q11 due to the persistent decline of mortgage rates through the quarter. “We continue to recommend investors stick with banks that have sizable mortgage banking operations because refinance levels should stay elevated from low interest rates, and some large players have exited the business, which should bode well for gain-on-sale margins,” the FBR team said.

New issuance of mortgage- and asset-backed securities faltered in the third quarter, although production levels were gaining strength in September. A new Inside MBS & ABS analysis reveals that $330.12 billion of ABS and residential MBS were issued during the third quarter, a decline of 6.3 percent from the previous three-month period. The surprisingly tepid increase in residential MBS issuance was not nearly enough to offset a substantial drop in non-mortgage ABS activity. Non-mortgage ABS issuance fell 43.4 percent from the second to the third quarter, sinking to $24.84 billion and reversing the very...(Includes one data chart)

The improvements that the Federal Housing Finance Agency is expected to make to the government’s Home Affordable Refinance Program will likely come at the expense of MBS investors, say experts. The outlines of an expanded HARP are far from clear, but the FHFA is said to be giving serious consideration to lifting the 125 percent loan-to-value limit, in addition to waiving loan-level pricing adjustments, representation and warranties imposed on lenders, valuation requirements and the portability of mortgage insurance. The agency, which oversees Fannie Mae and Freddie Mac, is expected to make an...

The credit rating industry is generally making progress in implementing a landslide of new regulatory requirements – both in the U.S. and from overseas regulators – but several firms continue to wrestle with conflict-of-interest standards and other issues, according to an annual report released this week by the Securities and Exchange Commission. Problems were found at all 10 ratings firms. The three larger nationally recognized statistical rating organizations – Standard and Poor’s, Moody’s Investors Service and Fitch Ratings – all have more than 1,000 credit analysts and credit analyst supervisors, while...

Moody’s Investors Service continued to rank as the top credit rating agency in the non-mortgage ABS market, putting its stamp on 66.9 percent of dollar volume of deals issued in the first half of the year, according to a new Inside MBS & ABS analysis. Moody’s was particularly strong in the vehicle finance and business loan sectors, with market shares approaching 75.0 percent in both categories. The company showed relatively little interest in the student ABS market, but ranked second in rating credit card deals. Standard & Poor’s ranked second overall with a 58.3 percent share of ABS ratings. That included a near...(Includes two data charts)

The strategic default problem is not going away, keeping pressure on servicers and MBS investors to find ways to dis-incentivize these actions. House prices continue to fall, and more underwater homeowners are willing to batter their credit rating and default on their mortgage to get out of an uneconomic deal. In a recent report, analysts at Deutsche Bank said the threat of legal action and risks to assets other than the mortgaged property play a large role in a homeowner’s decision to strategically default. Eleven states are considered non-recourse states, either because they explicitly forbid deficiency judgments or...

Securitization market participants continue to face significant uncertainty from regulatory forces on both sides of the Atlantic that is dampening securitization activity, raising costs and probably leaving some deals undone. Much of the problem stems from capital requirements and the use of credit ratings, which have fallen into disrepute among many lawmakers and regulators in the wake of the collapse of the subprime mortgage market and the resulting credit market freeze in 2008. After last year’s enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve, the Federal Deposit Insurance Corp., the...