Wall Street’s ability to hide and disguise significant risk through the abuse of derivatives and other “novel financial products” would be greatly reduced under a proposed modernization of tax rules issued last week by the Republican head of a top House committee. The “discussion draft” released by House Ways and Means Committee Chairman Rep. Dave Camp, R-MI, would revamp, among other things, the tax treatment of bonds traded at a discount or premium on the secondary market, increase the accuracy of determining gains and losses on securities sales and prevent harvesting of tax losses on securities. “Updating these tax rules to reflect modern developments in financial products will make...

Federal regulators faced with finalizing controversial rules on risk retention in non-agency MBS, ABS and commercial MBS transactions of the future are considering a “fair-value” approach instead of the controversial premium capture cash reserve account. Although no details on the proposal are available, the American Securitization Forum recently provided general views on how fair value calculations of an issuer’s risk-retention requirement could replace the PCCRA. The group said the change could be “a significant improvement” over the PCCRA, which could have wreaked havoc on the securitization market. The PCCRA, which would have required issuers to hold in reserve any premium they earned in selling assets to a securitization trust, was...

Secondary market investors interested in branching out beyond plain vanilla mortgage products are not going to have much to get excited about once the Consumer Financial Protection Bureau’s new ability-to-repay rule kicks in next year, top legal experts suggested this week. “Will lenders make rebuttable presumption qualified mortgages? Remember, [lenders] are free to make loans that generally satisfy the ATR standard. We don’t think those are going to be very common. We don’t think they are going to be saleable in the secondary market at this point in time from what we know today,” Donald Lampe, leader of the financial services regulatory and compliance practice with the Dykema law firm, told participants in a webinar hosted by Inside Mortgage Finance, an affiliated newsletter. As he sees it, the real issue boils down...

With state and local lawsuits against Fannie Mae and Freddie Mac seeking payment for real estate transfer taxes from which the GSEs assert they are exempt, an industry attorney says the endgame for enterprise and municipality alike won’t come from the courts but from the other two branches of government at the highest level. Last month, Spokane, WA, and Montgomery County, MD, joined a growing list of local governments to file suit against the two GSEs for unpaid taxes, challenging Fannie’s and Freddie’s claim that the firms are exempt under their federal charter from transfer taxes in connection with the recording of deeds upon transfer of property by sale or foreclosure.

Cooperatives or “affinity groups” are keeping quiet on what effect recent changes made by Fannie Mae regarding volume discounts will have on their businesses. To date, the three most widely recognized lender co-ops – Capital Markets Cooperative, Lenders One, and America’s Mortgage Cooperative – have said little or nothing on the situation, at least publicly. However, mortgage bankers close to the issue say it could affect Lenders One the most since the company once promoted a pricing advantage it enjoyed as a marketing tool. Some cooperatives charge members for their services upfront, while others only receive a percentage of the value derived from each secondary market transaction.

A large and potentially lucrative “request for proposal” issued several months ago that requires outside vendors to aid the Federal Housing Finance Agency in carrying out its “Strategic Plan” for taking the GSEs to the next stage in their evolution has yet to be awarded. According to a copy of the RFP obtained by Inside The GSEs, work on the contract was slated to start January 28. Potentially, the contract runs through January 2018. A spokeswoman for the agency said FHFA is “still in the process of evaluating” the situation.

Fannie Mae and Freddie Mac have taken different positions on how to deal with new seller/servicers that haven’t been approved for very long. While Fannie has set purchase limits on how much production newly approved seller/servicers can sell to the GSE, Freddie Mac has shied away from such caps. A spokesman for Freddie told Inside The GSEs that it treats all its customers equally. “We don’t have a limit on new customers,” he clarified. Lenders must meet the net worth minimum, which is roughly $2.5 million. Fannie Mae, on the other hand, is tying loan sale volume to net worth. The lower a lender’s net worth, the less it can sell to Fannie. According to a recent message posted to Fannie’s website by executive vice president and chief risk officer John Nichols, Fannie placed limits on new customers –primarily nonbanks – because the company saw what it called a “significant shift in the composition of our customer base and the emergence of many new originating institutions with whom we have done little or no business.”

Municipalities determined to follow through with a proposal to use local government eminent domain powers to nullify existing mortgage contracts of underwater borrowers should expect a swift response from the government conservator of Fannie Mae and Freddie Mac, warns an industry insider. Last week, executives of San Bernardino County, CA, voted to reject a proposal to use eminent domain to seize mortgages with negative equity to affect a principal reduction for borrowers. The decision was reportedly based on expert warnings about the destabilizing effect on the housing market such a policy would have, as well as a conspicuous lack of public support.

Fannie Mae and Freddie Mac announced this week that they will further extend the suspension of foreclosure sales and eviction lockouts for borrowers impacted by Hurricane Sandy. Announced in consultation with the Federal Housing Finance Agency, the GSEs’ new 90-day extension applies to homeowners with properties or employment within the Federal Emergency Management Agency (FEMA) declared disaster area that are eligible for individual assistance.

The Federal Housing Finance Agency has settled the first mortgage-backed securities lawsuit with the smallest player in the FHFA’s massive litigation against non-agency MBS issuers and underwriters it says sold toxic MBS to Fannie Mae and Freddie Mac. In papers filed with the U.S. District Court, Southern District of New York, the FHFA “voluntarily dismisses with prejudice” its lawsuit against General Electric Co., ending the legal action in which the Finance Agency had claimed the firm had misled Freddie into purchasing some $549 million of toxic MBS. The terms of the settlement were not disclosed by the FHFA but the agreement also dismissed claims against Morgan Stanley and Credit Suisse as underwriters for the securities. “This settlement resolves the dispute between FHFA, and GE consistent with FHFA’s responsibilities as conservator of Freddie Mac,” said FHFA General Counsel Alfred Pollard in a statement. “FHFA is pleased this lawsuit has been resolved and appreciates the work of Freddie Mac on this matter.” The FHFA filed suit during the summer of 2011 against 18 financial institutions, including GE, alleging violations of the federal Securities Act of 1933. The Finance Agency seeks tens of billions of dollars in damages incurred by the GSEs on purchases of approximately $200 billion in non-agency MBS sold between 2005 and 2007. GE had the smallest legal exposure among the major firms named in the FHFA’s lawsuits as GE’s one-time subsidiary, WMC Mortgage, sold MBS only to Freddie.