Even though the origination volume of non-agency, non-jumbo mortgages is relatively small, private equity firms increasingly are eyeing the space, believing that within two years – or maybe sooner – the business could be producing robust profits. In short, investors want to enter non-agency lending before anyone else does – and at “ground level” prices. According to non-prime executives and investment advisors, private-equity funds of varying sizes want...

The mortgage credit box contracted quickly as the housing market slid toward disaster in 2007, but it’s proving to be much more difficult to stretch it back to what used to be considered normal. The subtitle to this week’s annual convention of the Mortgage Bankers Association could well have been “access to credit,” an idea that clearly dominated the conversation. Despite the recent unexpected drop in mortgage interest rates, most observers expect origination volume in 2015 to track closely to this year’s sluggish level and part of the problem is relatively weak home-purchase lending. Industry people are...

Mortgage industry executives should be aware and expect continued – and perhaps even more muscular – use of a 1989 federal law by government prosecutors to pursue mortgage-related claims. At the direction of Attorney General Eric Holder, the Department of Justice embraced the use of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) in MBS lawsuits. Despite Holder’s announcement late last month that he is stepping down after six years as AG, there is...

Investors have bid up the value of MBS the past two weeks, with agency product hitting new 52-week highs. This development benefits investors as long as interest rates don’t fall dramatically enough to spark prepayment concerns. In particular, analysts are paying close attention to publicly traded mortgage real estate investment trusts that hold agency MBS. According to figures compiled by Inside MBS & ABS, REITs held $286.3 billion of MBS at the end of June after increasing their holdings by 9.7 percent during the second quarter. Now, those bets are paying off...

The disclosure rule recently issued by the Securities and Exchange Commission aims to reduce reliance on credit ratings in the structured finance market, an issue that federal regulators have long grappled with. The SEC’s Regulation AB took effect in 2006, and it included a requirement that publicly offered securities have an investment-grade rating. The so-called Reg AB2 finalized by the SEC in August eliminates the rating requirement and instead sets a number of new requirements for publicly issued deals. Beginning in November 2015, the CEO of the depositor of publicly issued...

A federal judge in New York has cleared the way for investors to proceed with a $10 billion class-action suit against JPMorgan in relation to the 2007 sale of non-agency MBS. Judge Paul Oetken of the U.S. District Court for the Southern District of New York, however, limited the scope of the class-action suit to JPMorgan’s liability but did not certify as to damage. Explaining his decision to narrow the scope of the suit, Oetken said...

Supporters of using eminent domain to resolve underwater but performing non-agency mortgages succeeded in placing their proposal back on the front burner in California this week. On Tuesday, the San Francisco Board of Supervisors unanimously voted to convene in closed session later this month with the city attorney’s office for advice on “anticipated litigation relating to the potential negotiation or adoption of a joint powers agreement with the city of Richmond [CA] to establish a homeownership stabilization authority to assist homeowners with troubled mortgages.” The board opted...

A shift from refinances to purchase mortgages has helped push combined loan-to-value ratios on jumbo mortgage-backed securities to the highest levels since the financial crisis. The higher LTV ratios are prompting an increase in credit enhancement requirements. JPMorgan Chase this week issued a $355.64 million jumbo MBS with an average combined LTV ratio of 74.0 percent. And WinWater Home Mortgage is preparing a $276.91 million jumbo MBS with an average combined LTV ratio of ...

A number of participants in the non-agency market are working to address the risks posed by second liens taken out by borrowers after the origination of the first mortgage. Some potential investors in non-agency mortgage-backed securities have balked at buying into new issuance due to concerns about borrower leverage and equity positions. “That’s a big problem for insurance companies and institutional investors, that debt can morph over time,” Fred Matera, a managing director at Redwood Trust ...

Issuers of non-agency mortgage-backed securities appear likely to continue working in the private 144A market as opposed to issuing deals in the public market, according to industry participants. Redwood Trust was issuing jumbo MBS in the public market, but it switched to the 144A market even before new requirements from the Securities and Exchange Commission made private issuance more attractive. Most other jumbo MBS issuers in recent years have also stuck with offering their deals in ...