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...

Standard & Poor’s announced late last week that it updated the criteria for ratings on non-agency MBS with mortgage collateral originated before 2009. The new standards are effective immediately and will result in significantly more downgrades than upgrades, according to S&P analysts. The standards update criteria for credit, cash flows and rating stability, and introduce new methods for analyzing transactions that have fewer than 100 loans remaining in the pool. Vandana Sharma, a managing director and lead analytic manager for U.S. residential MBS ratings at S&P, said the new standards reflect key market trends. “In light of the stabilization of home prices and delinquencies in the U.S. mortgage market, these criteria seek...

A three-judge federal panel this week agreed to hear a rare interlocutory appeal by one of the defendants in a series of lawsuits that the Federal Housing Finance Agency has filed in connection with non-agency MBS purchased by Fannie Mae and Freddie Mac. The Second Circuit Court of Appeals accepted UBS Americas’ appeal, which had been certified by Judge Denise Cote of the U.S. District Court of New York in late June. UBS seeks to re-argue and reverse Judge Cote’s May 4 denial of the bank’s motion to dismiss on statute of limitation grounds. The FHFA sued...

Top-tier, highly liquid consumer ABS are still attractive investments in today’s market, owing to strong technical factors and solid fundamentals, according to Barclays Capital. “Traditional consumer ABS continue to enjoy status as a safe haven asset class, especially in times of broader market volatility, and are an excellent cash surrogate for investors looking to put excess cash to work,” wrote research analyst Joseph Astorina, who cited the sector’s stable cash flow and ratings profiles, as well as consistent excess returns over swaps and Treasuries. In addition, this sector is...

Chimera Investment announced last week that it needs to restate quarterly earnings and other reports beginning with the third quarter of 2008 due to accounting on its portfolio of non-agency mortgage-backed securities. The real estate investment trust has been grappling with the issue for a year and has not issued earnings since the third quarter of 2011. While still completing an evaluation of the restatement, Chimera said the change will result in lower income along with a more than doubling of ...

Home Affordable Modification Program servicers are increasingly offering principal reduction loan modifications to non-agency borrowers, according to the Treasury Department. The increase comes after the Treasury tripled the incentives that can be paid to investors beginning in March, though principal reduction mods have yet to increase significantly due to the change. In recent months, about 70.0 percent of eligible non-agency HAMP borrowers received some form of principal reduction ... [Includes one chart]

It has been another busy week in the turbulent world of litigation over non-agency mortgage-backed securities. The Federal Deposit Insurance Corp. filed lawsuits regarding non-agency MBS, Wells Fargo agreed to settle non-agency MBS-related charges with the Securities and Exchange Commission and the Department of Justice and the SEC dropped its non-agency investigation into actions by Goldman Sachs. The FDIC lawsuits against 15 issuers and underwriters relate to $1.46 billion in AAA tranches of non-agency MBS ...

Standard & Poor’s last week updated its criteria for ratings on non-agency mortgage-backed securities with collateral originated before 2009. The standards update criteria for credit, cash flows and rating stability and apply immediately. The rating service said the changes will result in more downgrades than upgrades. This week, S&P placed 16,872 ratings from 3,364 securities with a par amount of $253.95 billion on CreditWatch. About 70.0 percent of the ratings are on watch for potential downgrades ... [Includes three briefs]

Ginnie Mae is reportedly considering increasing its minimum net worth requirement in response to an onslaught of requests by smaller banks for new issuer approvals. Quoting agency officials, reports indicate that Ginnie Mae is being swamped with applications from smaller mortgage lenders seeking authority to issue agency-backed mortgage backed securities. With large aggregators like Bank of America, MetLife and Ally Financial opting out of the correspondent and reverse mortgage businesses, many smaller lenders lost access to the Ginnie Mae program. However, many of these lenders are stepping into the breach on their own or with partners to ...