Mortgage originators selling loans into MBS last week likely were hit with “pair-off” fees from secondary-market investors who were expecting delivery of higher-yielding mortgages, a proposition complicated by the sudden downdraft in rates. As one secondary market executive noted: “A forward sale into an MBS is not a perfect hedge. Then again, nothing is a perfect hedge.” Originators that fund billions of dollars each quarter use...

Late last week, Moody’s Investors Service published an analysis detailing risks from mortgage warehouse securitizations. The warning was published days after a $225.0 million deal from Jefferies Funding was issued with a Aaa rating from Moody’s. Analysts at Moody’s stressed that securitized mortgage warehouse facilities face risks that differ from traditional residential MBS. The analysts said Station Place Securitization Trust 2016-1 from Jefferies addressed the risks, prompting the Aaa rating. Station Place was backed...

Morningstar Credit Ratings changed the way it rates residential MBS to allow credit for mortgage insurance. After getting a number of inquiries about the use of mortgage insurance in new MBS, the firm said it decided to enhance its methodology to provide a clearer framework for how the ratings agency approaches mortgage insurance. While mortgage insurance does not necessarily affect a borrower’s probability of default, it may decrease loss severities, according to Morningstar. “Our methodology now gives credit to mortgage insurance in some cases up to the AAA ratings level,” said Brian Grow, managing director of RMBS for Morningstar. “MI’s potential impact on default is...

The TRID error problem is not going away, at least not yet...

Fannie Mae earned $2.47 billion in the fourth quarter, according to its earnings statement released this week, a 25.9 percent increase from the previous quarter. The GSE attributes that rise to an increase in longer-term interest rates. For the full year 2015, Fannie’s income declined to $11.0 billion from $14.2 billion in 2014. The GSE said the decline was partially the result of a reduction in income from settlement agreements and increased expenses relating to its single-family foreclosed properties. Fannie plans to send $2.9 billion in dividend payments to the U.S. Treasury by the end of March. When that dividend payment is made, the GSE will have returned $147.6 billion to the government versus draws of...

Freddie Mac reported earning $2.16 billion in its fourth quarter earnings statement announced this week and a $6.38 billion profit for all of 2015, slightly less than the $7.69 billion earned the previous year. But its net interest income, which includes guaranty fee income, rose 4.8 percent to $14.95 billion.Unlike in the third quarter, when the GSE announced a $475 million loss due to hedging activities, this time around hedging losses were a non-event. Overall, Freddie booked $744 million in gains on its derivatives in the fourth quarter. Freddie noted that the shift was primarily due to an increase in long-term interest rates during the period as opposed to a decrease as witnessed in the third quarter.

Freddie Mac expects the multifamily market to remain strong, despite the onslaught of new supply, with purchases slightly greater in 2016. Multifamily origination volume in 2015 is expected to be at $225 billion and the GSE anticipates 2016 industry volume to reach between $240 billion and $250 billion. GSE participation in the multifamily market constituted the largest portion of 2015’s increase over 2014. Freddie did $47.2 billion in multifamily business in 2015. “It was a great year for the multifamily market and for the Freddie Mac multifamily market. Great for both the mortgage market in terms of record volume of origination and for the property market with continued strong growth in demand, positive fundamentals...

Fannie Mae revealed that Canyon Partners, Goldman Sachs and Pretium Mortgage Credit Partners were the winning bidders of its first nonperforming loan sale of 2016, which amounted to $1.32 billion in delinquent loans. The four pools went to market on Jan. 12 with the help of Bank of America Merrill Lynch and First Financial Network. They included approximately 6,500 loans spread across four different pools. Canyon Partners won the first pool comprised of 3,127 loans with an aggregate unpaid principal balance of $637.4 million, a weighted average note rate of 5.7 percent and average delinquency of 59 months.

The CEO noted that Freddie Mac has made great inroads in doing more business with small to medium-sized lenders, but also said that when it comes to the GSE’s credit box, “it is not being fully used” by the industry.

In particular, Watt expressed his concerns about January 1, 2018 when Fannie and Freddie – as promulgated by the U.S. Treasury – are forced to have a capital “buffer” of zero dollars.