A Chicago police officers’ pension fund has filed suit against Bank of America and U.S. Bancorp, claiming that the two banks failed to protect investors during their turn as MBS trustees and violated an obscure, seven-decade-old federal securities statute. The lawsuit, brought last week by the Chicago Policeman’s Annuity & Benefit Fund, said that BofA, and later U.S. Bank as successor trustee, “regularly disregarded their contractual and statutory duties” by failing to oversee some 41 Washington Mutual trusts backed by home loans. “By failing to perform their duties, defendants have caused MBS holders...

Lack of procedures for resolving repurchase conflicts between non-agency MBS investors and providers of representations and warranties could negatively affect the rating for any newly issued residential MBS, according to a new analysis by Moody’s Investors Service. The volume of unresolved repurchase conflicts between MBS investors and reps and warranties providers can be gauged by the number of lawsuits and the growing dollar value of settlements, said Moody’s analyst Kathryn Kelbaugh. The issue was thrust into the spotlight recently because 82 percent of the loans backing the $746 million non-agency...

The Treasury Market Practices Group this week issued new guidance on the system of charges for failed agency MBS trades that went into effect earlier this year, hoping to address lingering industry concerns about the voluntary program. The group acknowledged that market participants will likely see an increase in operational expenses from the system, but participants should see a decline in the amount of resources they have to commit to addressing these issues as the number of failed trades declines. For the agency MBS market, the TMPG said its recommended two-day resolution period should allow...

A data and analytics firm has developed a method to hedge exposure to the underlying risk associated with fluctuating real estate values. The Chicago Board Options Exchange has approved the RPX Futures for its futures exchange. The RPX Composite Index, designed by Radar Logic, calculates the daily value of home prices by determining the price of housing per square foot. “The RPX is a translation of price per square foot gathered from public source records,” explained Michael Feder, CEO of Radar Logic. “We look at all closing transactions with enough information to observe.” The index numbers...

Moody’s Investors Service has come up with a new metric that evaluates how much cash a subprime mortgage servicer generates from loan modifications and liquidations versus how much it loses through loss mitigation and inaction on delinquent loans. A quick resolution may be the single most decisive factor in maximizing cash flow, whether it’s an effective loan modification or an outright foreclosure and liquidation. “It’s better to do it quickly,” said Peter McNally, a vice president and senior analyst at Moody’s who contributed to the development of the metric. “A modification is good if you make the...

The non-agency MBS market had a faint pulse during the first quarter of 2012, but new issuance continues to struggle for footing against adverse forces. A total of $5.04 billion of non-agency MBS were issued during the first three months of this year, nearly triple the volume during the fourth quarter of 2011. The brightest spot was the prime jumbo sector, where first-quarter MBS issuance ($1.47 billion) exceeded the total produced in all of 2010 and 2011 combined. Redwood’s two jumbo MBS backed by newly originated mortgages suggest that the company may be finding a...(Includes three data charts)

The Obama administration’s Residential MBS Working Group, set up in January to probe misconduct that drove the financial crisis, is apparently trying to tap the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to make such cases easier to bring. Although it hasn’t been used that much, the appeal of pursuing criminal investigations under FIRREA is apparently the relatively lower burden of proof than bringing more traditional criminal charges. Also, FIRREA has a longer statute of limitations than do other finance-related laws, along with the potential for large fines...

Wells Fargo and JPMorgan Chase reclassified more than $3 billion of second-lien mortgages as nonperforming loans in the first quarter of 2012, a move other banks have copied. Both Wells and JPMorgan said that federal guidance from late January was behind the change. Wells characterized $1.7 billion of subordinate home-equity loans as nonperforming and JPMorgan assigned $1.6 billion to that status. “We do not view this as a material shift in the performance of these loans or the reserving methodology,” Fitch Ratings wrote. “However, increased regulatory scrutiny of second liens may continue to...

The FHA and Ginnie Mae continue to face risk-management challenges despite steps they have taken to better assess, manage and minimize risk, according to an updated report from the Government Accountability Office. The report said recommendations the GAO made in a previous assessment to improve risk management have not been fully implemented at either of the agencies. Both agencies, however, said efforts are underway to implement GAO recommendations. The FHA is getting more scrutiny from Congress because of the weak condition of the Mutual Mortgage Insurance Fund, whose capital reserve ratio has ...

First Republic Bank – the primary source of loans for Redwood Trust non-agency mortgage-backed securities – has received high marks for its jumbo originations. FRB’s originations are concentrated around San Francisco, largely for wealthy borrowers. After relying on CitiMortgage for all of the loans in its first post-bust non-agency MBS issuance, Redwood has relied heavily on FRB. The lender accounted for a slight majority of the four securities totaling $1.41 billion Redwood has issued in 2011 and at the beginning of 2012 ...