MBS from Freddie Mac backed by modified mortgages offer investors protection from prepayment risk in an environment in which interest rates are expected to climb, according to analysts at Barclays Capital. The analysts said Freddie’s H-pools are particularly attractive, as the loans in the deals have been restructured under the Home Affordable Modification Program. Slightly more than $1.0 billion in H-pools have been issued, with the most recent activity in October. Barclays noted that Freddie could significantly increase its issuance of H-pools as the government-sponsored enterprise has accumulated a substantial amount of modified mortgages in its retained portfolio in recent years. Freddie had...

Fannie Mae late last week priced its third credit risk-sharing deal of 2014. The $2.05 billion note is the government-sponsored enterprise’s fourth and largest transaction under its Connecticut Avenue Securities series since the Federal Housing Finance Agency ordered both Fannie Mae and Freddie Mac to shrink the GSEs’ role in the U.S. housing market last year. In its latest offering – Series 2014-C03 – Fannie included reference loans with original loan-to-value ratios of up to 97 percent and “is consistent with prior transactions.” Previous C-deal offerings included reference loans with up to 80 percent LTV ratios. “We’ve continued...

One critic of the report on nonbank risk had this to say: “It’s just ridiculous what they [the IG] get away with. There’s risk in every business. Don’t they get it?”

“Prospect has a target list and they have an audience,” said one advisor. “But so far, in the mortgage M&A market there has been a lot of talk – with not too many deals getting done.”

Over five years, Fannie and Freddie would be wound down, but would be allowed to be sold and recapitalized as private entities with different business plans.

The modest rebound in non-agency MBS issuance during the first three months of 2014 fizzled during the second quarter of the year, according to a new analysis and ranking by Inside MBS & ABS. A total of just $1.60 billion of non-agency MBS were issued during the second quarter, a 62.7 percent decline from the previous period. It was the lowest quarterly volume in new issuance since the financial crisis of 2008. On a year-to-date basis, new issuance was...

After hearing from some market participants about certain unintended consequences, the Financial Industry Regulatory Authority decided to revise its earlier proposal to establish margin requirements for to-be-announced transactions to accommodate smaller players in the market. Last week, its board authorized FINRA to file with the Securities and Exchange Commission the revised amendments to FINRA Rule 4210 (Margin Requirements) to establish margin requirements for TBA transactions (including adjustable-rate mortgage transactions), specified pool transactions, and transactions in collateralized mortgage obligations, with forward settlement dates. The proposal is...

A significantly bigger Ginnie Mae would be placed in charge of all MBS issued with a government backing while Fannie Mae and Freddie Mac would be wound down and stripped of their government sponsorship under a bill filed last week by House Democrats. The legislation – the Partnership to Strengthen Homeownership Act, H.R. 5055, sponsored by House Democrats John Delaney (MD), John Carney (DE) and Jim Himes (CT) – has zero chance of gaining traction this year. It would create a new Ginnie Mae MBS backed by conventional mortgages that would have the full faith and credit of the federal government while tapping private capital to absorb some of the risk. The new structure under the Delaney-Carney-Himes bill would create...

Industry reaction to the FHFA IG report on nonbank and small lender risk was swift. Maybe Fannie Mae is better off having Countrywide as its biggest customer again?

The recent shift in direct mortgage sales by smaller and nonbank lenders has reduced Fannie Mae’s and Freddie Mac’s concentration risks, but the trend has led to an increase in counterparty credit risk, according to the Federal Housing Finance Agency’s official watchdog. The evaluation report issued this week by the FHFA’s Office of Inspector General said the regulator of the two government-sponsored enterprises needs to monitor Fannie’s and Freddie’s risk-management controls regarding smaller lenders and nonbanks. According to Inside Mortgage Trends, an affiliated newsletter, nonbank sellers accounted...