Most major mortgage servicers reported slight increases in the number of loans in distress during the third quarter of 2011, according to the Inside Mortgage Finance Large Servicer Delinquency Index. Servicers handling over $7 trillion in mortgage loans reported a combined 10.70 percent delinquency/foreclosure rate as of the end of September. That was up 12 basis points from the previous quarter. Of the 17 servicers included in the index, only six reported improved mortgage performance data compared to June. The problem was focused squarely on more...(Includes two data charts)

With no end in sight for the conservatorships of Fannie Mae and Freddie Mac and huge obstacles to the recovery of the non-agency MBS market, Washington policymakers and industry analysts are searching for ways to bring private capital into the mortgage market without jeopardizing the stability provided by government mortgage finance programs. Analysts at Barclays Capital think they have found a way. The company this week released a paper outlining a new program through which the government-sponsored enterprises would issue a new form of unsecured debt with cash flows linked to...

Residential mortgage securitization rates declined in the third quarter of 2011, but surging volume in the primary market will push new MBS issuance higher in coming months. A total of $247.5 billion of residential MBS backed by newly originated loans were issued during the third quarter, representing a relatively low 76.1 percent of the supply of new home loans originated by lenders during the period, according to an Inside MBS & ABS analysis. During the third quarter, about 67 percent of single-family mortgages securitized by Fannie Mae were...(Includes one data chart)

As the Securities and Exchange Commission considers updating its oversight of asset-backed securities issuers, such as enhancing investor protections and changing the use of credit rating agencies, major players in the securitization market are split on whether – and how – it should do so. The SEC is considering whether to revise Rule 3a-7, which excludes qualified ABS issuers from being classified as investment companies under the Investment Company Act of 1940. The rule now includes several conditions that refer to credit ratings by nationally recognized statistical...

The Federal Reserve Bank of New York will ask its primary dealers, as part of best practices, to raise their upfront cash collateral for MBS trades. A NY Fed spokesman denied that the change in collateral requirements was a reaction to the recent collapse of MF Global, a primary dealer. Since its last foray into the agency MBS business in 2010, the agency has been considering raising the margin for MBS deals, he said. The spokesman said a best practices guidance issued by the NY Fed’s Treasury Market Practices Group in September 2010 requires trading desks to consider...

The Federal Housing Finance Agency’s Office of Inspector General is attempting to grow the Finance Agency and the OIG itself into a larger-than-necessary entity, and that is a questionable objective given Fannie Mae and Freddie Mac’s “uncertain long-term future,” the FHFA head told lawmakers last week.FHFA Acting Director Edward DeMarco, testifying before the Senate Banking, Housing and Urban Affairs Committee, noted the OIG’s “recurring conclusion” in its recent reports “that the FHFA is understaffed and that it should be more directly engaged day-to-day in the enterprises’ business activities.” That would include independently repeating and validating Fannie and Freddie’s business decisions and calculations.

The Federal Housing Finance Agency earlier this month issued a proposed rule to require the Federal Home Loan Banks to “monitor and assess the eligibility” of each Bank member for access to long-term advances through compliance with the Community Reinvestment Act and the member’s first-time homebuyer standards.To maintain access to FHLBank long-term credit and community investment products, Bank members are required to submit a community support statement to the FHFA every two years to document their CRA performance and record of lending to first-time homebuyers.

Major mortgage servicers are widely expected to agree to principal reduction for some struggling homeowners as part of the price of settling complaints over foreclosure practices brought by state attorneys general. That idea doesn’t sit well with some MBS investors, who are concerned that they will end up paying some of the cost of reducing principal as a way to keep distressed borrowers in their homes. The Association of Mortgage Investors warns that principal reduction of securitized loans would be akin to forcing the middle class to bear the settlement’s burden. In a statement, the AMI warned that principal reductions could...

ABS issuers are scrambling to get a handle on complex new rules to mitigate conflicts of interest in the structured finance market that are being developed by the Securities and Exchange Commission and federal banking regulators. “At the end of the day, we’ll spend lots of time figuring out how to comply,” said Bianca Russo, managing director and associate general counsel at JPMorgan Chase, during a seminar sponsored last week by the American Securitization Forum. “It’s going to be a challenge to comply, however the rules turn out.” Complexity and consistency are...

Legislative proposals for a TBA market backed by non-agency MBS as an alternative to a market driven by government-sponsored enterprises lack precedence and are full of unknowns, according to analysts. “While this is a laudable effort – and a necessary one in order to remove the government’s sup-port from the housing finance market – the extent to which private enterprise will be able to pick up the slack the GSEs leave behind is unknown,” said Benjamin Feldman, a housing policy analyst and advocate. Peter Wallison, an Arthur F. Burns fellow in financial...