Proponents of the non-agency market are concerned that the final rule recently issued by federal regulators setting risk-retention requirements for certain securitized mortgages includes an exemption for Fannie Mae and Freddie Mac. Beginning in late 2015, risk-retention requirements for residential mortgages will apply to newly issued non-agency mortgage-backed securities collateralized by loans that don’t meet standards for qualified mortgages. Issuers or lenders contributing to ...

One of the chief concerns among some top institutional investors in the non-agency residential mortgage-backed securities market is coming up with a way to price the risks of poorly underwritten or serviced mortgages more effectively. The objective is to price deals so the costs associated with an origination or servicing failure will be more appropriately assigned to those responsible for the defect. During a recent industry conference, a managing director at ...

Chimera Investment emerged from years of accounting issues with an ability to return to the new-issue jumbo mortgage-backed security market. However, the real estate investment trust has focused its new investment strategy on agency MBS as well as multifamily activity and a unique restructuring of vintage non-agency MBS. Matthew Lambiase, president and CEO of the real estate investment trust, said the returns offered by new jumbo MBS aren’t currently attractive. “The economics are ...

Goldman Sachs teamed with EverBank Financial to issue a unique jumbo mortgage-backed security last week, its first jumbo MBS since the financial crisis. The $282.80 million GS Mortgage-Backed Securities Trust 2014-EB1 received AAA ratings with credit enhancement of 8.35 percent on the senior tranche. All of the loans in the deal are hybrid adjustable-rate mortgages originated by EverBank. Some 7.9 percent of the ARMs have a 10-year interest-only period. The deal marked a shift ...

Due-diligence and document-file reviews will key Fitch’s rating of residential MBS backed by re-performing loans and seasoned mortgage loan collateral, based on revised criteria, according to a recent report from Fitch Ratings. Fitch recently finalized its criteria for analyzing re-performing and seasoned loan RMBS to include closer attention to risk factors. Fitch uses its mortgage loan-loss model as well as representation-and-warranty and due-diligence reviews in analyzing the key risk drivers for RPLs. However, since the methodologies currently used by the rating agency were developed with an eye towards newly originated and seasoned performing collateral, RPL pools and some seasoned performing pools purchased in the secondary market are likely to be influenced...

The Federal Housing Finance Agency should not wait for Congressional reform and should instead move at a deliberate pace to implement a single government-sponsored enterprise MBS, according to the Structured Finance Industry Group. SFIG staff and several members met with FHFA officials this week to discuss the potential transition to a single, common security between Fannie Mae and Freddie Mac. In August, the FHFA proposed...

Seven years after the financial crisis, market demand for non-agency residential MBS remains feeble, at best – mostly because of higher yields elsewhere, convexity risk concerns, bond liquidity and pricing and missing structural reforms, industry participants say. “Even with the modest amounts of RMBS issuance that we’re seeing, the market is still struggling to digest those securities. We saw that last year and in the beginning of this year. So the question is: what’s driving that lack of demand?” said Rui Pereira, managing director at Fitch Ratings, during a panel discussion at a residential MBS reform symposium sponsored by the Structured Finance Industry Group and Information Management Network in New York City last month. In advance of the public discussion, Pereira queried...

Ocwen Financial, which has been under intense regulatory scrutiny most of the year, stopped buying delinquent loans out of Ginnie Mae pools during the third quarter, according to a review of loan-level data by Inside MBS & ABS. The cessation of buyouts is unusual and has some MBS analysts scratching their heads, wondering whether more trouble could be afoot at the nation’s largest nonbank servicer. According to a new report from Barclays, the reduction in buyouts by Ocwen (as measured by prepayments) “could be due...[Includes one data chart]

Non-agency MBS backed by nonperforming mortgages that include a program manager benefit from the unique oversight provided by the manager, according to Moody’s Investors Service. However, there are concerns that in some instances the program manager’s interests may conflict with those of senior bondholders. Moody’s said program managers typically set performance targets and monitor servicers’ progress at the loan level, adopt foreclosure strategies that reduce timelines and expenses and direct servicers’ loss mitigation strategies. The managers are more common on non-agency MBS backed by nonperforming loans than on non-agency MBS backed by newly originated mortgages. Program managers are...

The relatively strong performance of mortgages in vintage non-agency MBS could be disrupted by interest rate resets and the expiration of interest-only periods, according to analysts at Fitch Ratings. Roughly half of all performing first-lien mortgages in non-agency MBS will be exposed to monthly payment increases during the next five years, Fitch said in a report released this week. The rating service determined that if a borrower’s monthly payment increases by 35 percent, the probability of default for the borrower doubles. “The product that’s going to be most affected is...