Fitch Ratings has finalized its new residential MBS loan loss model, with several additional enhancements designed to better address risks that drive defaults and losses, such as a new variable known as “sustainable loan-to-value,” which represents a borrower’s effective equity in the property. “When gauging credit risk for new U.S. residential mortgage loans, borrower equity is key,” explained Kevin Duignan, group managing director and head of U.S. structured finance for Fitch. “The core principle underpinning the framework is the interaction between borrower equity and market value declines in determining expected loss for...

The ongoing debate over the need for a government guarantee to sustain the benefits of the to-be-announced MBS market moved this week to the Senate Housing, Banking and Urban Development Committee, where researchers covered both sides of the issue for a group of lawmakers who aren’t likely to act on their counsel any time soon. “Proponents of privatization ignore that the jumbo market does benefit from a government guarantee indirectly in multiple ways,” said Adam Levitin, professor of law at Georgetown University. “The jumbo market has long aped the standards set by the [government-sponsored enterprises] in the conforming market, including...

One of the primary sponsors of mortgage refinance legislation pending in the Senate told colleagues this week that her legislation could save homeowners and Fannie Mae and Freddie Mac tens of millions of dollars, while acknowledging that it could cost the Federal Reserve billions of dollars in lost investment income. Testifying on behalf of her legislation before a Senate subcommittee on Wednesday, Sen. Barbara Boxer, D-CA, said S. 170, the Helping Responsible Homeowners Act of 2011, “would result in up to 54,000 fewer defaults and produce a net savings up to $100 million for Fannie and Freddie.” Homeowners would see immediate relief. “A one and a half percent reduction in...

Mortgage securitization rates remained at record levels through the first half of 2011, reflecting a sharp decline in new primary market production and a surge of agency issuance early in the year. A new Inside MBS & ABS analysis reveals that mortgage securitization activity in the first half of 2011 equaled 96.0 percent of loans originated during the same period. That compares to an 84.9 percent securitization rate for all of 2010 and an 85.6 percent rate – the record high – back in 2009. Because it can take weeks or even months before a newly originated mortgage hits the capital markets as collateral backing an MBS, there is a significant slippage between... [Includes one data chart]

Securitization participants and financial services providers flatly rejected a proposal to create an independent federal board that would assign credit rating agencies to initially rate non-agency MBS, ABS and other structured finance transactions. In separate comments, two industry trade groups and Fitch Rating Services opposed the proposal, which is being studied by the Securities and Exchange Commission. The Dodd-Frank Act instructs the SEC to study the concept and report back to Congress by July 2012 with its recommendations for regulatory or statutory changes. The idea of establishing a board to oversee credit rating agencies and address...

A Senate lawmaker and the Mortgage Bankers Association warned House lawmakers that a narrow “qualified residential mortgage” rule will result in overuse of the FHA program and make it more difficult for private capital to re-enter the housing finance market. Testifying before the House Financial Services Subcommittee on Insurance, Housing and Economic Opportunity last week, Sen. Johnny Isakson, R-GA, said the six federal agencies charged with crafting risk-retention requirements apparently failed to consider the impact of a narrow QRM rule on the FHA program. Isakson, who co-authored a Senate exception to...

The Senate Banking, Housing and Urban Affairs Committee may not be moving any closer to a decision on reforming the mortgage finance system, but lawmakers should be getting well versed in the various analytic perspectives on the role of the federal government. At a hearing this week, the committee heard testimony from researchers who support winding down Fannie Mae and Freddie Mac as soon as possible and others who say private capital won’t be drawn back into the system unless there is a government guarantee. “There’s absolutely no reason to believe that private capital would immediately step-up – even if it would eventually...

The Department of Housing and Urban Development said it would work with Congress to strengthen the FHA and Ginnie Mae in a way that protects taxpayers and facilitates the return of private capital despite its mixed views of a Republican draft bill to reform the two programs. Assistant Secretary for Housing and FHA Commissioner Carol Galante told members of the House Financial Services Subcommittee on Insurance, Housing and Economic Opportunity last week that HUD is willing to work with lawmakers to increase access to credit and strengthen risk management and lender enforcement. But while the GOP draft bill contained elements similar to...

The Consumer Financial Protection Bureau is taking a different tack in its latest round of prototype integrated consumer mortgage disclosure forms, this time utilizing the same form to facilitate comparison shopping of two different types of loans. Under its Know Before You Owe project, the CFPB is trying to integrate the current Truth in Lending Disclosure Statement and the Good Faith Estimate under the Real Estate Settlement Procedures Act into a single disclosure document. “In the first three rounds of Know Before You Owe, we asked you to compare different draft versions of a simplified mortgage disclosure form,” said Patricia McCoy, who heads...

Even as industry observers agree that the White House’s announced attempt to improve refinance efficiency through an expansion of the Home Affordable Refinance Program is worthwhile, there remain too many unknowns at the moment to judge how effective a HARP makeover will be. As part of his much anticipated speech before a joint session of Congress last week, President Obama noted his administration’s intent to help homeowners. “To help responsible homeowners, we’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent,” said Obama. “That’s a step that can...