Supporters of a controversial plan to use eminent domain to seize underwater mortgages from non-agency MBS pools, write down their balances, refinance them into the FHA program and repackage them for sale to other investors are facing fresh challenges. In California, where the eminent domain plan was first introduced, the Joint Powers Authority formed by the County of San Bernardino and two of its cities, Ontario and Fontana, announced that its next meeting, which was scheduled for Thursday, Oct. 25, 2012, had been cancelled. The only business before the JPA is...

The continued use of certain features of shifting-interest structures in MBS will keep risk of loss high for senior bond holders and even erode senior credit enhancement, although senior bonds in relatively new shifting-interest deals appear better protected from late-stage defaults, according to an analysis by Moody’s Investors Service. Moody’s said senior bonds in shifting-interest transactions it rated since 2010 have better armor against defaults in the late stages of the loan because they all have a hard credit enhancement floor. In a shifting-interest structure, the securitization sponsor may cover...

Regulatory uncertainty continues to frustrate mortgage bankers who can see the outlines of major pending changes in consumer protection, securitization rules and capital requirements that remain largely enshrouded in bureaucratic fog. “We have these new concepts, qualified mortgages and qualified residential mortgages, but we don’t know what their exact definitions are,” said Michael Heid, president of Wells Fargo Home Mortgage, during a panel session at this week’s annual convention of the Mortgage Bankers Association in Chicago. “We are in a gray state; the concepts are there, but the rules aren’t. At the same time we’re having to clean up issues from the past.” Debra Still, president and CEO of Pulte Mortgage, said...

New production of non-mortgage ABS during the third quarter held to the strong pace set so far in 2012 despite a softening in student loan securitization. A new Inside MBS & ABS market analysis and ranking shows that $48.72 billion of non-mortgage ABS were issued in U.S. markets during the third quarter, up 1.1 percent from the previous quarter. That brought year-to-date production to $136.90 billion, a hefty 37.3 percent increase over the first nine months of 2011. The biggest improvement in 2012 has been...[Includes two data charts]

No matter how bad mortgage market watchers believe this week’s headline-grabbing lawsuit against Morgan Stanley by the American Civil Liberties Union is, it could be much, much worse for a swath of new potential defendants throughout the securitization pipeline and for the industry as a whole, according to one legal expert. The ACLU headed a group that filed suit in the U.S. District Court in New York on behalf of five Detroit residents. The lawsuit claims that Morgan Stanley pushed a unit of now-bankrupt New Century Financial Corp. to target minority borrowers for high-risk subprime mortgages. Between 2004 and 2007, Morgan Stanley “ramped up”...

Redwood Trust issued a $320.34 million non-agency jumbo MBS this week, its fifth of the year. The security looks a lot like other recent MBS from Redwood and officials at the real estate investment trust are optimistic about future non-agency MBS issuance. Sequoia Mortgage Trust 2012-5 received AAA ratings with credit enhancement of 7.30 percent on the highest rated tranche. Fitch Ratings, Kroll Bond Rating Agency and Moody’s Investors Service all placed ratings on Redwood’s latest MBS issuance. The main concerns from the rating services regarding Redwood’s latest MBS have been raised...

Shellpoint Partners is preparing to issue new non-agency MBS as it filed a shelf registration statement this week with the Securities and Exchange Commission. Once approved, Shellpoint plans to issue non-agency MBS via Shellpoint Mortgage Acceptance, which it has nicknamed “Shelly Mac.” Non-agency MBS from the specialty finance company formed in 2010 with Lewis Ranieri as its chairman will differ in a number of ways from non-agency MBS issued by Redwood Trust. Instead of acquiring loans on a bulk or flow basis from lenders, Shellpoint said it only expects to securitize mortgages originated by its wholly-owned subsidiary New Penn Financial. “Shellpoint and New Penn Financial are...

The Commodity Futures Trading Commission late last week issued a temporary exemption for “securitization vehicles,” including MBS, from burdensome rules required by the Dodd-Frank Act regarding commodity pools. The exemption from rules for swaps lasts through the end of the year and was detailed in a series of no-action letters. Industry participants including the American Securitization Forum and the Securities Industry and Financial Markets Association requested the no-action letter from the CFTC for rules that went into effect on Oct. 12. The groups warned that applying the new regulation to MBS with simple interest rate swaps would harm the market for new issuance as well as outstanding securities. “This legal and regulatory uncertainty could have...

Mortgage real estate investment trusts that invest in MBS are likely to see their profitability reduced in coming quarters, largely as a result of the competition they’re facing from the Federal Reserve for assets to buy. Since the Fed’s Sept. 13 announcement that it would snap up an additional $40 billion of agency MBS a month as part of its latest quantitative easing, yields have dropped and spreads have narrowed, and that’s cutting into the earnings and dividends of mortgage REITs. Paul Miller, a securities analyst at FBR Capital Markets, agrees...

Optimism in the non-agency MBS market’s recent extraordinary performance continues as investors look beyond legacy MBS to new transactions, such as Redwood Trust’s Sequoia jumbo securitizations, according to analysts. A recent analysis by Bank of America Merrill Lynch expects lower-yielding asset classes to push investors toward the non-agency MBS sector, where volumes are expected to remain at healthy levels for the rest of 2012. Analysts, however, noted...