Looser underwriting standards and concerns about the financial strength and limited operational history of Shellpoint Partners pushed the credit enhancement on the issuer’s pending non-agency MBS to levels not previously seen in the new wave of non-agency MBS issuance. Shellpoint is preparing a $261.58 million non-agency jumbo MBS, according to presale reports released this week. The deal is set to receive a AAA rating with credit enhancement of 10.10 percent on the top-rated tranche. AAA credit enhancement levels on recent deals from Redwood Trust and JPMorgan Chase have ranged...

Representatives of the structured finance industry are worried about the effect the Consumer Financial Protection Bureau’s ability-to-repay/qualified-mortgage rule will have on the revival of the non-agency MBS sector. One of their main concerns right now is that the further away a loan is from getting safe harbor protection as a qualified mortgage, the more legal uncertainty and higher costs there will be associated with it. Last week, analysts at Morningstar Credit Ratings LLC noted that the rule will allow a borrower in the first three years of the mortgage to bring legal action challenging whether the lender determined an ability to repay. If successful, the borrower can be entitled to up to three years of fees and finance charges, actual damages, and legal fees and costs, they said. Additionally, the borrower will be able...

Wall Street is concerned that the further away a loan is from getting safe harbor protection as a qualified mortgage, the more legal uncertainty and higher costs there will be associated with it.

With the Federal Housing Finance Agency working on a common securitization platform for Fannie Mae and Freddie Mac, market participants are beginning to ask whether the residential finance sector really needs two government-sponsored enterprises. This week, at a policy forum in Washington, MBS co-inventor Lewis Ranieri and former GSE regulator James Lockhart suggested that the industry doesn’t need both Fannie and Freddie. The thinking is that a common securitization platform will facilitate the transition to a standardized GSE MBS, with slight variations, that would eliminate the current pricing differentials between Fannie and Freddie MBS. Speaking at the Bipartisan Policy Center, Lockhart noted...

Freddie Mac's "low activity fee" will be mostly eliminated. However, it will still apply to originators that have not sold a loan to the GSE in 36 months.

A new “pragmatic” secondary market reform plan released by four housing experts closely resembles the bipartisan legislation being drafted by key members of the Senate, including an ambitious implementation timeline that says the overhaul could be accomplished in about three years. Sponsored by the Milken Institute, the Urban Institute and Moody’s Analytics, the “Pragmatic Plan for Housing Finance Reform” features a new government MBS guaranty that would cover catastrophic losses after private credit enhancement is exhausted. Like the legislation being drafted by Senators Bob Corker, R-TN, and Mark Warner, D-VA, it would create a new Federal Mortgage Insurance Corp. to manage the new government MBS guaranty. Under the proposal, MBS insurers would be...

Ambac Assurance Corp. may proceed with its fraud claims against JPMorgan Chase in connection with residential MBS that Ambac insured, a New York state judge ruled last week. In March 2012, Ambac filed suit against JPMorgan Chase, alleging fraudulent marketing of residential MBS by Bear Stearns and Co., which was acquired and renamed JPMorgan Securities. The suit claims that Ambac had to pay more than $200 million in insurance claims to investors from seven Bear Stearns securitization transactions that lost $1.8 billion. Ambac contends...

When rates spiked this week, margin calls to MBS investors increased. Lenders are nervous but next will will be the real test, mortgage executives told Inside Mortgage Finance.

Fannie Mae and Freddie Mac were improperly prevented from increasing their guaranty fees for years during the GSEs’ conservatorship after the federal government unconstitutionally seized control of the two companies during the 2008 financial crisis and the lower fees cost investors billions of dollars, according to a federal lawsuit filed by GSE shareholders last week. The plaintiffs – including the City of Austin (Texas) Police Retirement System and Washington Federal, a Seattle-based bank – filed a class-action suit in the U.S. Court of Federal Claims in Washington, DC. The GSE shareholders seek some $41 billion in damages for what they claim was the government’s violation of their 5th Amendment rights that prohibit taking of private property for public use “without just compensation.”

It’s no secret that speculators wide and far are betting the common and preferred shares of Fannie Mae and Freddie Mac could rise significantly as their profits continue to stay robust. But according to James Lockhart, who once headed the Federal Housing Finance Agency, these speculators are likely throwing their money away. Speaking at a recent housing forum sponsored by the Bipartisan Policy Center, he noted that the Treasury Department owns the senior preferred of the GSEs and the senior stock “sits above” the junior shares. Lockhart said the government preferred will never be paid back, which means the junior holders are out of luck. Lockhart, who now serves as vice chairman of WL Ross & Co., said he does not own any stock in the two nor does he plan on buying any.