Activity in the Home Affordable Modification Program’s Principal Reduction Alternative is heavily concentrated, according to an analysis by Inside Nonconforming Markets. Bank of America and Wells Fargo combined account for 51.4 percent of the non-agency principal reduction mods, based on new disclosures by the Treasury Department. The servicers’ PRA activity is outsized even compared with their overall non-agency HAMP activity. BofA and Wells combined account for 33.6 percent of active non-agency HAMP mods ... [Includes one data chart]

The securitization industry told the Securities and Exchange Commission this week that certain rules might be needed to make sure transaction parties are not creating and selling ABS that are intentionally designed to fail or default and profiting from the failure or default of such securities. However, industry representatives urged the regulator to make sure that any such rules not be overly broad or vague or place undue restrictions or prohibitions upon the securitization market and otherwise impair its recovery. The SEC in September proposed a rule to implement provisions...

Observers in MBS and legal circles are closely watching how a federal judge will rule on a pending motion by UBS Americas to dismiss the mortgage securities lawsuit brought last summer by the Federal Housing Finance Agency on statute of limitations grounds and the ruling’s potential impact on other pending FHFA MBS litigation. The FHFA sued UBS in July and then filed a blizzard of 17 lawsuits against some of the industry’s biggest institutions, including Bank of America, Credit Suisse, JPMorgan Chase, Morgan Stanley and others, seeking tens of billions of dollars in damages incurred by Fannie Mae and Freddie...

Analysts covering the commercial mortgage-backed securities market are cautiously optimistic, predicting continued volume growth and better performance of CMBS in 2012, although at a much slower pace compared to the past two years. CMBS investors will tend to be cautious this year because of continuing economic uncertainty worldwide, particularly the European debt crisis, and a tougher debt market that may reduce liquidity, analysts said. The CMBS market has not yet fully recovered from its almost total collapse in 2009 as a result of the financial crisis. Although recovery began in 2010, issuance remains...

MBS investors were not at the negotiating table for the multistate servicing settlement, yet they will feel the reverberations of the principal reductions and loan modifications the banks have promised state attorneys general and federal agencies. The $25 billion agreement reached last week among 49 states, the federal government and five major servicers – Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial – allocates $10 billion toward principal reductions for underwater borrowers at risk of default. The banks will cough up another $7 billion for other forms of borrower...

Industry trade groups this week stepped up their efforts to block the imposition of additional fees on Fannie Mae and Freddie Mac MBS as a way for the government to pay for an extension of the payroll tax holiday and unemployment benefits. Late this week, the House-Senate conference committee announced it reached an agreement on a $150 billion extension through the end of 2012, although final details of the deal were not yet finalized as Inside MBS & ABS went to press. Lawmakers had been considering raising $4 billion of new revenue from increased guarantee fees from the two government-sponsored...

Reaction among non-agency participants regarding the settlement by five large bank servicers announced last week has been mixed. Investors are divided on what impact principal forgiveness loan modifications will have on non-agency mortgage-backed securities – largely because the settlement terms have not been settled yet. “Once the bank modifies their own portfolio loans, where it makes sense to reduce principal, there is a huge incentive to do the rest of the modifications using investor money,” warned Amherst Securities Group. “This stems from the fact that the servicers are able to use investor funds to satisfy their own claims. And the conflicts of interest are exacerbated because of the second liens ...

With prices relatively low, vintage non-agency mortgage-backed securities have been a hot item in recent weeks. Some analysts suggest that the buying boom has already peaked and the collateral is overpriced again, though a significant amount of non-agency MBS is still available for sale. “The non-agency market has rebounded in 2012 after a poor second half of 2011,” according to analysts at Bank of America Merrill Lynch. The Federal Reserve’s two sales in as many months of Maiden Lane assets are as good an indicator as any that investor demand for non-agency MBS is strong ...

The delinquency rate on subprime mortgages at the end of 2011 hit levels not seen since 2008, but analysts warn that subprime performance could worsen as borrowers are unable to refinance and negative equity increases. The seasonally adjusted delinquency rate for subprime mortgages fell to 20.8 percent at the end of 2011, according to the Mortgage Bankers Association. The rate has declined in each of the past seven quarters from a peak of 27.2 percent in the first quarter of 2010. However, a number of factors suggest that delinquency rates on non-agency mortgages will increase ...

Non-agency market participants and stock investors appear to be optimistic about the prospects for real estate investment trusts. REITs are positioned to absorb a portion of the agency share of mortgage origination activity, and investor interest in REIT stocks has increased recently. “REITs should definitely take a big part of the agency footprint,” said Michael Commaroto, president and CEO of Apollo Residential Mortgage, a hybrid REIT. Such REITs invest in both agency MBS and non-agency MBS, with agency MBS generally accounting for most of the investing portfolio ...