The Federal Housing Finance Agency this week joined a growing chorus raising warnings about proposals to use the eminent domain powers of local government to seize performing underwater mortgages out of non-agency MBS pools. In an unusual move, the agency said it has “significant concerns about the use of eminent domain to revise existing financial contracts and the alteration” of Fannie Mae, Freddie Mac and Federal Home Loan Bank securities holdings. The FHFA formally invited public comment on the concept and warned that “action may be necessary on its part [as conservator and regulator of the government-sponsored enterprises] to avoid a risk to safe and sound operations and to avoid taxpayer expense.” The issue drew attention this week because both Fannie and Freddie managed...[Includes one data chart]

Single-family MBS issuance in the agency market dropped 4.8 percent from June to July, according to a new Inside MBS & ABS market analysis and ranking. A total of $133.23 billion of agency single-family MBS were issued last month, a huge 82.9 percent increase of the amount produced in July of last year. That brought year-to-date issuance in 2012 to $893.92 billion, an increase of 40.5 percent from the same period last year. Fannie Mae was the only agency to see...[Includes one data chart]

Royal Bank of Canada is preparing to issue the first covered bond registered with the Securities and Exchange Commission. The bond will be backed by a pool of Canadian mortgages and issued in U.S. dollars. RBC received a no-action letter from the SEC in May setting the stage for the covered bond issuance, which could come as soon as later this month. The bank has previously issued the equivalent of $9.49 billion (Canadian dollars) of covered bonds in a variety of currencies both outside and in the U.S. via private offerings under Regulation S and Rule 144A. The law firm of Morrison & Foerster advised...

Standard & Poor’s proposed rating criteria for commercial MBS would not impact three-quarters of conduit deals but could result in upgrades for some securities and downgrades for others, according to the rating agency. Whether the proposed criteria enhancements would restore CMBS issuers’ confidence in S&P ratings is unclear, but observers say that the potential for higher ratings for some securities could pave the way for S&P to regain its exalted spot in the CMBS market. Last year, S&P shocked the market when it refused...

A German-based, state-owned lender has filed suit in a Manhattan court against Great Britain’s second-largest bank, alleging it sold over $274 million of non-agency MBS under false pretenses.Bayerische Landesbank contends in its lawsuit filed Aug. 3 in New York State Supreme Court that Barclays PLC issued offering materials that contained “material misrepresentations and omissions” regarding the underwriting standards used while issuing the residential MBS.Barclays’ offering materials also allegedly misrepresented...

As the “shadow” banking sector has grown and evolved since the 1970s, questions have arisen as to the extent to which traditional banks may have been displaced by other financial institutions, insurance companies and entities as alternate sources of financing and the credit enhancement to securitization transactions. However, three economists at the New York Federal Reserve Bank recently found that, contrary to the notion that banks are being eclipsed by other institutions, banks have held their own against insurance companies involved in the enhancement business, despite their underdog status. “The first thing to note is that enhancements by insurance companies outnumber...

A recent Congressional report confirms there’s been a jump in the drop-out rates for students at for-profit colleges, and that’s bad news for investors in the securitizations backed by loans to these students, according to market analysts. “A two-year investigation by the Senate Committee on Health, Education, Labor and Pensions demonstrated that federal taxpayers are investing billions of dollars a year – $32 billion in the most recent year – in companies that operate for-profit colleges,” said a report by the committee. “Yet, more than half of the students who enrolled in those colleges in 2008-09 left without a degree or diploma within a median of four months. That compares with 46 percent in a study by the Department of Education of a 2003-04 cohort, which itself reflected...

Standard and Poor’s Rating Services has corrected its long-term issuer credit rating on the Federal Home Loan Bank of Seattle by lowering it from ‘AA+’ to ‘AA,’ S&P announced last week. “The rating reflects FHLB Seattle’s unchanged stand-alone credit profile of ‘A+’, plus two notches of uplift to reflect expected extraordinary government support if needed, according to our government-related entity criteria,” said the rating agency. “The S&P outlook on the bank remains negative and this correction did not affect the Seattle bank’s short-term ‘A-1+’ rating or the ratings on the consolidated obligations of the Federal Home Loan Bank System.”

A number of nonbanks have increased their correspondent originations recently with plans to take more market share as the big banks focus on retail lending. Redwood Trust, PennyMac Mortgage Investment Trust, Homeward Residential and others have all touted their recent correspondent efforts, both for agency mortgages and non-agency originations. Since 2010, Redwood has used its conduit platform to supply...

Sales and purchases of vintage non-agency MBS have been well above average levels in recent weeks as investors see value in the sector with the housing market recovering. The purchases are being made by traditional buyers such as money managers and insurance companies as well as by banks, according to industry analysts. Daily trading volume of non-agency MBS has averaged about $3.0 billion in recent weeks, based on an analysis of TRACE data by Barclays Capital. During the past six to 12 months, daily non-agency MBS trading averaged $1.7 billion to $2.0 billion. Some $1.09 trillion in non-agency MBS was...