Bank of America appeared to clear a hurdle in getting final approval for its proposed $8.5 billion MBS settlement when the New York State Supreme Court last week dismissed an attempt to overturn the deal by an investor group that was not included in the settlement. New York State Supreme Court Justice Barbara Kapnick dismissed the complaint brought by Walnut Place LLC and related entities on March 28 saying that the investors can’t sue BofA directly without giving the Bank of New York Mellon enough time to act in its role as the MBS trustee. Walnut Place’s appeal seeks to revive its suit against BofA. Walnut...

Prudential Financial last week utilized a unique hybrid MBS/covered bond structure to finalize a $1.0 billion bond secured by vintage subprime MBS. Standard & Poor’s, which gave Prudential Covered Trust 2012-1 an A rating, said the original balance of the MBS was approximately $2.8 billion. Proceeds from the sale of the notes are being used to buy a pool of MBS from Prudential Insurance. The issuer will then sell investors the Class A notes and the proceeds will be passed through to Prudential Financial. The underlying certificates are expected to generate sufficient cash flows to make the...

The Federal Housing Finance Agency is in the midst of a full and frank appraisal of the Treasury Department’s recently proposed incentive program to spur GSE principal reductions through the Home Affordable Modification Program, with a final answer to be forthcoming later this month, according to the agency head. For months now, FHFA Acting Director Edward DeMarco has been the target of unrelenting political pressure from the Obama administration and Congressional Democrats to allow Fannie Mae and Freddie Mac to employ mortgage principal reductions as a tool to modify underwater GSE loans.

A new investor survey from JPMorgan Chase shows that money managers and other major investor classes have little capacity to purchase significant amounts of MBS, leaving a wide open market for real estate investment trusts to pick up the slack. “From a technical perspective, many investors are already overweight the sector, so there is assumedly limited room for significant further purchases from private investors,” the report said. The status of Fannie Mae and Freddie Mac as leading MBS investors has eroded since they were placed in conservatorship in 2008, and their portfolios are likely to remain...

Non-agency MBS deals have been plagued in the last two to three years by increasing instances of gaps and mismatches between expected collateral cash flow and payouts to bond holders, according to analysts at Barclays Capital. Most of the mismatches are attributable to balance capitalization, modifications and advances, either stopped or recovered by the mortgage servicers. Since most of the discrepancies are due to the treatment of delinquent mortgages, the gaps are widest in subprime. Sporadic mismatches have been spotted in option ARMs and Alt A hybrid loans as well, the analysts said...

Fannie Mae and Freddie Mac mortgage-backed securities remained the preferred investment choice of the Federal Home Loan Banks during the fourth quarter of 2011, with a minor decline posted from the previous quarter, according to a new analysis by Inside The GSEs based on data from the Federal Housing Finance Agency. Ginnie Mae securities likewise posted a decline within the 12 FHLBank system during the three-month period ending Dec. 31, 2011. GSE MBS accounted for 69.6 percent of combined FHLBank MBS portfolios, down 2.1 percent from the third quarter of 2011. The Finance Agency’s data do not separately break out Fannie and Freddie volume or share.

President Obama this week signed into law a measure that, among other things, kills big bonus payments to Fannie Mae and Freddie Mac executives for as long as the GSEs are subsidized by taxpayers. After nearly two months and some legislative positioning, Congress passed the Stop Trading on Congressional Knowledge Act of 2012. Primarily, the STOCK Act bars House and Senate members and their staff from using non-public, inside information for personal benefit.However, an amendment to the bill which was passed on an overwhelmingly bipartisan margin in both houses of Congress prohibits the payment of bonuses over and above a GSE executive’s salary compensation while Fannie and Freddie remain in government conservatorship.

The inherent tensions between the Federal Housing Finance Agency’s dual role as both conservator and regulator of Fannie Mae and Freddie Mac pose “significant challenges” that may put the Finance Agency at cross purposes with its two missions, according to the FHFA’s official watchdog. A white paper issued by the FHFA’s Office of Inspector General last week offering its current assessment of the agency’s conservatorship of the GSEs cited the Finance Agency’s two main challenges as: attempting to advance the enterprises’ business interests while assisting distressed homeowners; and simultaneously serving as both conservator and regulator.

Senate Democrats would like to see the Federal Housing Finance Agency loosen even further the refinancing restrictions on GSE mortgages and they’ve got a couple of pointers on how to make it so. Last week, Democrats on the Senate Banking, Housing and Urban Affairs Committee, led by Chairman Tim Johnson, SD, wrote FHFA Acting Director Edward DeMarco to encourage the Finance Agency to take the Home Affordable Refinance Program beyond HARP 2.0.

Three former Fannie Mae executives, including the company’s one-time CEO, have petitioned a federal judge to toss the securities fraud case the government filed against them late last year. Filed last week in the U.S. District Court for the Southern District of New York, the motion to dismiss contends the Securities and Exchange Commission is thin on proof that the GSE, at the direction of the then top executives, failed to disclose to investors the companies’ exposure to subprime mortgages prior to the 2008 housing market crash.