Prudential Financial this week issued a $1.0 billion bond to sell vintage subprime mortgage-backed securities. Analysts described the bond as a hybrid between an MBS and a covered bond. Standard & Poor’s gave Prudential Covered Trust 2012-1 an A rating, which was based on the rating of Prudential, not of the subprime MBS being sold. The bond was sold as a private placement and Prudential has not commented on the sale. However, in its recently released annual report for 2011, Prudential said it had transferred some of its subprime MBS holdings ...

PennyMac Loan Services has some unique loss-mitigation strategies, but Moody’s Investors Service warned this week that some of the company’s approaches are risky. Among other issues, PLS can require borrowers that otherwise would not qualify for a loan modification to deed their property to the servicer if the mod does not succeed. “While this approach can improve loss mitigation performance or reduce timelines, Moody’s believes these programs could result in borrowers and regulators challenging this practice as well as headline risk to the company,” the rating service said. PLS has yet to employ the tactic. The warning from Moody’s ...

The Treasury Department this week finished winding down its holdings of Fannie Mae and Freddie Mac MBS, claiming a positive return of $25 billion for the U.S. taxpayers from a market stabilization initiative launched in the teeth of the 2008 financial market meltdown. Treasury’s holdings of MBS issued by the two government-sponsored enterprises peaked at $197.6 billion in December 2009. “These MBS purchases helped preserve access to mortgage credit during a period of unprecedented market stress,” the agency said. The Federal Reserve agency MBS investment program was far bigger, peaking at $1.12...

An estimated 82.8 percent of single-family mortgages originated in 2011 ended up being financed through securitization, according to a new Inside MBS & ABS analysis. That’s the second highest level on record, falling slightly below the 84.4 percent securitization rate in 2009. Virtually all government-insured mortgages are securitized through the Ginnie Mae program, which securitized some $284.6 billion in newly originated FHA and VA loans last year. The big increase in securitization rate came in the conventional conforming market, where high loan limits have greatly expanded (Includes one data chart)...

Last week, the 2nd Circuit Court of Appeals ruled that Judge Jed Rakoff of the District Court for the Southern District of New York erred when he blocked the $285 million agreement the Securities and Exchange Commission and Citigroup struck to settle a dispute over MBS that later turned toxic when the market tanked. Market observers think it likely means the settlement is back on track, and a good sign for the market, “with sanity and certainty prevailing,” as one put it. In U.S. Securities & Exchange Commission v. Citigroup Global Markets Inc., the district court this past November refused to approve a...

Mounting fears that student loan debt will lead the way to the next credit crisis and legislative proposals to deal with those concerns appear to be having relatively little impact on the student loan ABS market, where new issuance has held fairly steady since the financial crisis. According to Bank of America Merrill Lynch analysts, the spreads for student loan ABS are attractive enough to “turn more positive on (the) private student loan sector.” New issuance of private student loan ABS fell off sharply following the financial crisis. Investors demanded higher risk premiums, said Jonathan...

Moody’s Investors Service is cautioning that the securitization market is again seeing elevated levels of risk, though not as bad as the go-go days before the 2008 bubble burst. In a report issued last week, Moody’s cited relaxed underwriting standards, more complex structures and the entrance of untested market participants over the last two years as signs of credit easing in a number of asset classes, including autos, credit cards, and commercial and residential property. “This reversion is not unusual for this phase of the credit cycle, when providers of credit typically start to relax standards...

The Federal Housing Finance Agency is calling for Fannie Mae and Freddie Mac to conduct an analysis of the viability of each company’s multifamily operations without government guarantees, suggesting the possibility of separating the two government-sponsored enterprises’ multifamily and single-family businesses. The GSEs’ mandated review of their multifamily operations is part of the FHFA’s 2012 “conservatorship scorecard” unveiled two weeks ago, which outlines the specific objectives and timelines for the Finance Agency’s strategic plan for the conservatorships of Fannie and Freddie. The multifamily...

The Financial Industry Regulatory Authority, a non-governmental watchdog of the securities industry, has asked the Securities and Exchange Commission to approve proposed amendments designed to increase transparency in to-be-announced transactions involving agency pass-through MBS. The proposed rule changes would establish clear requirements for reporting TBA transactions that are “for good delivery” (GD) or “not for good delivery” (NGD) to enhance the ability of investors to negotiate fair and competitive prices for agency MBS. Based on market standards, the GD and NGD classifications were...

A conservative, non-partisan public interest group has filed suit against the Federal Housing Finance Agency, claiming the FHFA has improperly denied the group’s request for documents relating to the Finance Agency’s decision to sue 17 financial institutions last fall on behalf of Fannie Mae and Freddie Mac over alleged misrepresentations of mortgage-backed securities.Last week, Judicial Watch filed its lawsuit in the U.S. District Court for the District of Columbia after the FHFA denied the group’s Freedom of Information Act request for documents related to the agency’s litigation. The Finance Agency argued that as private companies, FOIA requests do not apply to Fannie and Freddie.