Staff at the Federal Reserve Bank of New York and other legal professionals are scrutinizing the fundamental questions the foreclosure crisis has raised about the adequacy of the legal framework for modern mortgage note transactions, especially when it comes to transferring and enforcing notes and mortgages, and how best to resolve them. The role of the Mortgage Electronic Registration System is a part of the discussion. To date, they are relying upon a number of issues that have been identified in a draft discussion document prepared recently by the Permanent Editorial Board of the Uniform Commercial Code, in conjunction with...

The federal government's gradual pullback as an investor in the MBS market is beginning to open more space for commercial banks and other private investors. Commercial banks increased their investment in residential MBS by a solid 6.5 percent during the first quarter, pushing their combined holdings to a record $1.311 trillion. That represented about 20.0 percent of an overall MBS market that has been shrinking since the third quarter of 2009. Bank holdings of residential MBS were up 14.2 percent from the first quarter of last year. Through the U.S. Treasury, the Federal Reserve and the retained holdings of Fannie Mae and Freddie Mac, the federal government held... [Includes two data charts]

The Securities and Exchange Commission this week unanimously approved a proposed rule intended to strengthen and improve the transparency of credit ratings via new requirements for the rating agencies themselves, as well as third-party due diligence providers, underwriters and issuers. The new proposed rule would implement provisions in the Dodd-Frank Act, in which Congress noted the importance of credit ratings, said SEC Chairman Mary Schapiro. "It also noted that ratings that were applied to structured financial products proved inaccurate – and contributed significantly to the mismanagement of risks by...

Narrowly defined "qualified residential mortgages" under risk-retention rules and anything less than an absolute "qualified mortgage" safe harbor can severely limit credit availability and ultimately hamper the return of non-agency securitization, warned Amherst Securities Group in a new report. Arguing that risk retention may not produce any net benefit, the Amherst report said that the proposed definition of a qualified residential mortgage is too restrictive and that it may result in less mortgage credit being available. The effect would be more detrimental if Congress decides to further limit the reach of both...

The securitization market requires less of a heavy handed approach from government and a softer touch in order to restore investor confidence and lure private capital back into the market, industry executives told senators on Capitol Hill this week. Witnesses testifying before the Senate Banking Subcommittee on Securities, Insurance and Investment said the state of the securitization market is uncertain, due to government subsidies crowding out budding private sector resurgence, as well as an overly broad, but ambiguous, interpretation of the Dodd-Frank Act by regulators. "The consequences of failing to attract sufficient private-sector capital to...

Everyone seems eager to see the private sector re-enter the MBS market, but it simply isn't ready or willing, and won't be for a very, very long time, according to experts in an American Securitization Forum seminar held this week. "From our perspective as an investor, one of the things that you really have to think about when you look at the mortgage market is what investors, big institutional investors, are interested in purchasing. The biggest thing in our mind is liquidity," said Nancy Handal, a managing director at Metropolitan Life Insurance Company. "We learned a ton as investors from the crisis in 2008," she continued...

Effective July 1, reporting of tax information to investors of Ginnie Mae securities will move from e-Access to the Ginnie Mae Enterprise-Wide Portal (GMEP), which now serves as the single access point for all of the agency's online business applications. The e-Access function for uploading quarterly widely held fixed investment trust (WHFIT) reporting files for investors would no longer ...

New due-diligence rules will likely result in increased costs for issuers of non-agency mortgage-backed securities and increased disclosures for investors. Due diligence firms are also divided on whether to assume the "expert liability" required by the Securities and Exchange Commission regarding due diligence performed on MBS. Vicki Beal, a senior vice president at Clayton Holdings, said Clayton – a leading MBS due diligence provider – would likely be willing to take on the expert liability requirements. However, she said Clayton’s assumption of the liability would require MBS issuers to pay more for Clayton's services. The SEC issued...

Industry participants warn that federal regulators' recently proposed definition for qualified residential mortgages is too stringent and will unnecessarily limit lending to prime jumbo borrowers. If the rule is adopted as proposed, many warn that issuance of non-agency mortgage-backed securities will be limited or non-existent. "While the rules do a good job of addressing and deterring abuses of subprime securitization structures, they are overly and unnecessarily harsh when applied to prime securitization structures," said Martin Hughes, president and CEO of Redwood Trust. Chris Flanagan, a managing director at Bank of America Merrill Lynch, added that...

Lawmakers on a House subcommittee last week approved by a wide bipartisan margin a bill that would create a legislative framework for a covered bond market in the U.S. and, some critics contend, an unnecessary competitor to the Federal Home Loan Bank system.