$7.5 Million FHA Mortgage Fraud Scheme. The Department of Justice has filed charges against top executives of a real estate brokerage for their participation in a mortgage fraud scheme that may cost the FHA $7.5 million in losses. Indictments were unsealed earlier this month in Manhattan federal court charging Mitchell Cohen and Erin Davis, the owner and sales manager, respectively, of Buy-A-Home, a real estate brokerage business in Queens, NY. The criminal charges follow a civil fraud lawsuit filed by the U.S. Attorney’s Office for the Southern District of New York last December against ...

A lawsuit filed last week by Bank of New York Mellon against WMC Mortgage and GE Mortgage Holdings is the latest sign that repurchase issues on non-agency mortgage-backed securities are increasing. After years of resistance, trustees are starting to act on behalf of non-agency MBS investors seeking repurchases. Three of the four major banks reported increases in non-agency repurchase requests in the second quarter of 2012 compared with the previous quarter, according to an analysis by Inside Nonconforming Markets ...

The five servicers participating in the $25.0 billion national servicing settlement have taken vastly different approaches to loss mitigation, according to a report released this week by the Office of Mortgage Settlement Oversight. Short sales dominated early activity and Bank of America, the servicer with the largest obligations under the settlement, accounted for a small amount of initial loan modifications completed by the servicers. Combined, the five servicers granted non-agency borrowers ... [Includes one chart]

The Securities and Exchange Commission is conducting an in-depth investigation of non-agency mortgage-backed securities issued by Ally Financial’s Residential Capital, according to court documents released this week. The documents revealed that due diligence provider R.R. Donnelley & Sons Company has delayed the investigation, which started in February. “The commission is investigating ResCap’s origination and underwriting practices used to make and approve loans in connection with offerings of ...

The rating services report increasing inquiries regarding potential ratings for securitization of income from real-estate owned rental properties. The first REO rental non-agency mortgage-backed security could be issued later this year, but Suzanne Mistretta, a senior director at Fitch Ratings, suggested that AAA ratings are unlikely initially. “The lack of historical data and ambitious growth strategies by regional operators will make high investment-grade ratings on these transactions difficult ...

Fannie Mae and Freddie Mac’s newly amended preferred stock purchase agreement with the U.S. Treasury requiring the companies to accelerate the rate at which they reduce their investment portfolios will have little immediate impact but will become more challenging to the GSEs as time goes on, analysts predict. The Treasury’s amended agreement calls for the GSE portfolios to be wound down at an annual rate of 15 percent, instead of the 10 percent annual reduction originally required of the two companies. The more aggressive 15 percent reductions will go into effect in 2013. Consequently, Fannie’s and Freddie’s portfolios must be reduced to the $250 billion target by 2018, four years earlier than initially scheduled.

Chimera Investment announced that it will restate three years of earnings and take large hits to net income and other-than-temporary impairment losses due to accounting on non-agency mortgage-backed securities. The real estate investment trust has been working for more than a year to apply proper accounting guidance to its $4.41 billion in non-agency MBS holdings. “As a result of applying the correct generally accepted accounting practices guidance to our investments in non-agency residential mortgage-backed securities ...

The Federal Housing Finance Agency became the biggest opponent of proposals for local governments to use eminent domain to seize underwater loans from non-agency mortgage-backed securities. “FHFA has determined that action may be necessary on its part to avoid a risk to safe and sound operations at its regulated entities and to avoid taxpayer expense,” the conservator of the government-sponsored enterprises said in response to the proposed use of eminent domain to forgive principal on mortgages ...

Bank and thrift holdings of residential MBS changed very little in the second quarter of 2012, although the portfolios of several of the biggest depository institution investors revealed substantial changes from the previous period. A new Inside MBS & ABS analysis of call report data showed a 1.5 percent decline in total residential MBS held by banks and thrifts during the second quarter. After hitting a record $1.634 trillion as of the end of March, banks and thrifts reported $1.610 trillion in MBS in their held-to-maturity and available-for-sale portfolios as of the end of June. Even with the decline since March, bank and thrift MBS holdings were...[Includes two data charts]

The securities industry may be winning the battle to convince local governments not to use eminent domain to seize performing underwater mortgages from non-agency MBS pools after Chicago Mayor Rahm Emmanuel and other elected officials expressed their opposition to or reluctance about the controversial concept. “I don’t think it’s the right way to address the problem,” Emanuel told the Chicago Tribune this week after the city’s Joint Committee on Finance and Housing and Real Estate held a hearing to discuss the plan. “I think there are other places to do it. I don’t think it’s the power of the city to do, to deal with the housing issue. We have a national issue. I think we have to address the issue. I just don’t think that’s the right instrument.” Several members of the Chicago joint committee also expressed...