Fueled by a pent-up gusher of refinance activity on deeply underwater mortgages, the Home Affordable Refinance Program appears on pace to set a new record high in the second quarter of 2012, according to a new Inside MBS & ABS analysis. Based on loan-level data through the midway point in June, securitization of HARP loans by Fannie Mae and Freddie Mac is expected to reach an estimated $53.3 billion in the second quarter. That would represent a 27.1 percent increase over the previous record, $42.0 billion, set in the first three months of this year. A big chunk of the increase is...(Includes two data charts)

The Federal Reserve surprised some analysts this week by taking a cautious path in its latest effort to stimulate employment growth, choosing to extend its Operation Twist bond-buying program until the end of 2012 by focusing on Treasuries. The Federal Open Market Committee “intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less,” the FOMC said after its two-day meeting this week. “This...(Includes one data chart)

Redwood Trust is getting ready to issue its third jumbo non-agency MBS of the year, a slightly smaller deal backed by loans with slightly less shelf life. Fitch Ratings said it would give a triple-A rating to the most senior class based on 7.30 percent credit enhancement. That’s slightly above the 7.15 percent enhancement supporting the top tranche in Redwood’s previous jumbo deal. The company’s first securitization of 2012 had 8.25 percent of credit support for the top class, but it included a significant number of adjustable-rate mortgages. The new transaction, Sequoia Mortgage Trust 2012-3, will be backed by all...

The Federal Housing Finance Agency’s case against UBS Americas will serve as a test case in a series of lawsuits the agency filed in connection with non-agency MBS purchased by Fannie Mae and Freddie Mac, a Manhattan federal district court ruled last week. In a June 13 decision, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied UBS’s request that it should not be the first of 17 cases to proceed because it is not a loan originator and was not accused of fraud. According to the court, UBS was the best test case because the number of securitizations and...

Industry trade groups like what they have heard so far about the Federal Housing Finance Agency’s risk sharing proposal that would shift some of the mortgage credit exposure the government-sponsored enterprises hold to private investors, but more details are desired. In a comment letter on the FHFA’s draft strategic plan, the American Bankers Association said it “would welcome more details” about the agency’s intention to implement risk sharing but the trade group favors the effort. “This could be an important tool to re-engage the private sector, but it must be done in a transparent and well...

The Office of the Comptroller of the Currency has finalized a rule replacing certain credit rating references with alternative standards of credit worthiness to help banks determine whether a security is “investment grade.” Published in the June 13 Federal Register, the final rule is identical to the rule proposed by the OCC in November 2011 to implement directives in the Dodd-Frank Act to prevent over-reliance on credit ratings. Congress partly blamed inflated credit ratings for the financial crisis when triple A-rated mortgage securities lost their value as interest rates rose and home values...

Current and potential defendants in residential MBS litigation should expect more lawsuits stemming from the mortgage market collapse, particularly by or on behalf of state actors, but entities named in those suits are not without legal countermeasures, according to legal experts. During a webinar sponsored this week by the State Attorneys General Enforcement Network, attorneys Jason Halper and Martin Seidel of the law firm of Cadwalader, Wickersham & Taft predicted that the mortgage industry is only about halfway through the onslaught of MBS litigation to be brought by aggrieved investors. “I think this...

The pending issuance by Redwood Trust of a $293.59 million jumbo non-agency mortgage-backed security appears to have been adjusted to address concerns about previous issuance by the real estate investment trust. The deal is set to receive AAA ratings from three rating services, more lenders contributed to the deal, and the concentration of loans in San Francisco was reduced. “The borrowers in this pool have high FICO scores, significant liquid cash reserves and equity in their properties, which are ...

Banks and thrifts increased their holdings of first-lien residential mortgages in the first quarter of 2012 compared with a year ago, according to the Inside Mortgage Finance Bank Mortgage Database. The 3.0 percent growth rate was partly due to originations of nonconforming mortgages, which helped offset portfolio runoff. Banks and thrifts held $1.74 trillion in first-liens in portfolio at the end of the first quarter. Among the top three bank portfolio lenders, only Wells Fargo ... [Includes one data chart]

Capital rules proposed by federal regulators last week for banks could have a significant impact on originations and holdings of non-agency mortgages and mortgage-backed securities. The changes are part of Basel III reforms. Non-bank special servicers have already started to increase their portfolios due to sales by banks getting a head start on complying with Basel III rules. Industry analysts warn that originations of “non-vanilla” mortgages will also be curtailed. “Following the qualified mortgage rules and ...