Fitch Ratings recently updated its criteria for estimating losses on residential MBS transactions, introducing three new variables that influence default expectations, including the origination channel. Fitch said it has determined that loans originated through a direct retail channel have a lower default risk than those originated through brokers or correspondents. To account for this risk, the rating agency is now assigning a higher default probability to loans originated through non-retail channels. This newly added variable is applied...

Some servicers have retroactively applied losses to non-agency MBS from principal forbearance completed long ago even after suggesting that such losses were unlikely. Analysts warn that further losses are likely, at the expense of investors in the senior tranches of non-agency MBS. In May, some 170 non-agency MBS serviced by Ocwen Financial took combined losses of more than $1.0 billion due to accounting for principal forbearance that occurred before July 2012. The retroactive losses should have been reported at the time of the loan modification, according to guidelines for the Home Affordable Modification Program. The losses were included in remittance reports for May after servicing on the deals transferred from Homeward Residential to Ocwen. Later, 231 non-agency MBS serviced by Nationstar Mortgage took...

The question of whether the FHA should allow the refinancing of underwater mortgages seized through eminent domain has reemerged as a key issue following a recent decision by the city of Richmond, CA, to use its authority to take over distressed mortgages for restructuring. There is a new twist to the question, however. Could FHA’s refusal to refinance such mortgages be deemed discriminatory against cities and homeowners if eminent domain programs meet the requirements of the FHA Short Refinance program? Is that tantamount to redlining? A top executive of Mortgage Resolution Partners, which developed the eminent domain strategy to help underwater homeowners at risk of foreclosure, said ...

Ginnie Mae has changed certain office names to reflect the activities and responsibilities of the office more accurately. For example, the Office of Mortgage-Backed Securities is now known as the Office of Issuer and Portfolio Management. The Office of Program Operations name also has been discarded in favor of the Office of Securities Operations. The MBS Guide, including the summary of addresses and all forms and appendices, has been updated to reflect the office name changes. In addition, the address for overnight delivery of new MBS issuer applications ...

Fannie Mae, Freddie Mac and mortgage-backed securities trustees representing investors in non-agency MBS sued the city of Richmond, CA, this week to stop it from further implementing a plan to use eminent domain authority to seize and purchase performing underwater mortgages. Wells Fargo and Deutsche Bank, acting as trustees for a group of investors that includes BlackRock, Inc., Pacific Investment Management and the government-sponsored enterprises, filed the lawsuit in federal court in San Francisco at the behest of certificate holders. The plaintiffs are asking the court to declare the “Richmond Seizure Program” unconstitutional and in violation of California laws, and to order city officials to end the program. Securitizers and investors are...

A federal district court in New York last week ruled that a landmark discrimination lawsuit, the first to connect racial discrimination to the securitization of mortgage-backed securities, can move forward against Morgan Stanley. A July 25 ruling by the U.S. District Court for the Southern District of New York in Adkins v. Morgan Stanley denied in part the investment bank’s motion to dismiss the case, which alleges violations of the Fair Housing Act and the Equal Credit Opportunity Act. The putative class-action suit was filed...

Securitization of income-property mortgages declined by 7.9 percent during the second quarter of 2013, with the biggest drop coming in non-agency commercial MBS issuance, according to a new market analysis by Inside MBS & ABS. A total of $43.92 billion of commercial mortgage securities were issued during the second quarter, which still ranked as the second strongest quarter since the third quarter of 2007. For the first six months of 2013, total commercial mortgage securitization was up 78.5 percent from the same period, and the market appears likely to set another post-crash record by the time the year is over. The non-agency CMBS market has seen...[Includes one data chart]

Mortgage real estate investment trusts can draw some guidance from a recent private-letter ruling from the Internal Revenue Service on whether excess spread on mortgage servicing rights can be deemed as real-estate assets for REIT purposes. According to a recently released IRS private-letter ruling dated April 12, certain excess servicing rights would constitute a real-estate asset, and income from the spread would be treated as interest on obligations secured by mortgages on real property, for purposes of tax rules governing REITs. MSRs generally represent...

Ginnie Mae servicers continued to experience modest increases in servicing outstanding while FHA servicers reported a slight increase in 30-to-60 day delinquencies, according to Inside FHA Lending’s analysis of the agencies’ servicing portfolios as of midyear 2013. As of June 30, Ginnie Mae’s total servicing outstanding was $1.4 trillion, an increase of 6.6 percent from last year and up 1.8 percent from the first quarter, reflecting improvements in government-backed loan originations due to a slowly recovering economy. Ginnie Mae servicing volume has been ... [2 charts]

Freddie Mac this week issued the first in a series of planned transactions from the government-sponsored enterprises to share risk with the non-agency market. Industry analysts suggest that while the transaction represents a good value for investors, the audience for the transactions structured like a synthetic collateralized debt obligation is limited. The Structured Agency Credit Risk Debt Notes 2013-DN1 included a total of $500 million in two non-guaranteed tranches sold to investors with 10-year terms, according to non-agency market participants. The STACR reference pool consists...