Some of the major players in what is likely to develop as the real estate owned rental securitization market are still unsure about how exactly the market will develop. However, investor interest in the REO rental sector is strong, even if securitizations will not receive AAA ratings. At a seminar this week hosted by the American Securitization Forum, Suzanne Mistretta, a senior director at Fitch Ratings, confirmed that the rating service will not give initial REO rental securitizations anything higher than a single-A rating. Fitch and others have been approached...

Federal banking regulators, striving to keep their bank oversight current with international regulators through the adoption of the Basel III capitalization standards, are facing growing domestic resistance, including that of some of their state-based counterparts, who are concerned about the impact on mortgage assets. Greg Gonzales, chairman of the Conference of State Bank Supervisors, said last week that the organization strongly supports federal banking agencies’ efforts to improve capital standards internationally and for systemic institutions, but is opposed to their proposed approach to implement the Basel III capital accord and to incorporate a standardized approach for risk-weighted assets. “As bank supervisors, we believe...

A National Association of Insurance Commissioners proposal for more conservative ratings of insurer holdings of residential and commercial MBS could result in higher risk-based capital requirements on some of these securities, warned analysts. As the proposal currently stands, the changes involve increasing the probability weights assigned to more pessimistic economic scenarios. However, the method by which the economic scenarios are created will not change, according to Barclays Capital analysts monitoring the work of NAIC’s Valuations of Securities Task Force, which was assigned to develop the risk-based capital proposal for insurers’ CMBS and RMBS holdings. The proposed peak-to-trough economic scenarios for RMBS and CMBS consist...

Current efforts by numerous firms to establish a non-agency market for real estate owned rental securitizations are worthwhile, based on investor interest in the emerging sector. Investors are skeptical of REO rental assets but also willing to participate in the market, even without AAA ratings. “We look forward to being part of the discussions with issuers, investors and operators,” Youriy Koudinov, a director at TIAA-CREF, said this week during a seminar hosted by the American Securitization Forum. “As prudent ...

Investors in vintage non-agency MBS have seen strong returns in recent months, particularly in August. Industry analysts suggest that returns are likely to remain elevated as there are few remaining risks for non-agency MBS and supply is limited. “Despite increased profit taking on this year’s impressive performance, bonds continue to trade well,” according to analysts at Bank of America Merrill Lynch. “While demand for non-agency bonds will likely grow as home prices recover, it will not be met with more new supply as is seen in the broader high-yield bond universe. This is a very strong backdrop for further price appreciation.” From the beginning of June through the end of September, pricing on the ABX index that tracks subprime MBS has...

Interest shortfalls on non-agency MBS have increased significantly in the past five months, according to research by Morningstar Credit Ratings. The servicing-related issue causes investors to absorb unpredictable losses and could result in downgrades of non-agency MBS. A sample of 2,858 non-agency MBS deals (21,727 tranches) examined by Morningstar in May and again in August showed a 38.0 percent increase in the number of deals with interest shortfalls. Some 18.6 percent of non-agency MBS deals examined by Morningstar for the August remittance period experienced a shortfall in at least one tranche. Shortfalls increased overall even though 21.8 percent of the shortfalls seen in March had...

The MBS market widely embraced the Federal Reserve’s decision to increase its holdings of agency MBS by $40 billion per month until job growth improves significantly, but some observers are questioning the long-term costs and effectiveness of the strategy. Mortgage Bankers Association Chief Economist Jay Brinkman said that the Fed plan is “a way to inject more money into the economy,” while noting that the purchase of the no-risk, lower-yielding assets is designed to force investors to expand their risk appetite. “The idea is that if the Fed steps in and buys up some of these safe-haven assets, that is going to force people to go out and invest more and take on more risk,” he said during an MBA conference in Washington, DC, this week. This approach “is actually turning...

Private capital remains on the sidelines of the mortgage finance industry, unwilling to gamble on future government policy or the nascent recovery in housing markets, industry experts say. Banks and their examiners are pointing fingers at one another over who is responsible for the current credit crunch because regulations are not all in place, according to Mark Zandi, chief economist at Moody’s Analytics. During a symposium in Washington, DC, this week, Zandi said providers of private capital are also concerned about a housing market that has performed much better in the last six months but still raises doubts about sustaining house price gains. “I don’t think [it can be sustainable] until we nail down...

The Federal Reserve’s decision to keep interest rates low until the U.S. economy creates a significant increase in employment will help banks continue to enjoy solid earnings from their mortgage banking activities, according to analysts at Credit Suisse. The Fed is increasing its already huge portfolio of agency mortgage-backed securities by $40 billion a month. Along with the $25 billion a month the central bank has been buying to replace principal paydown, the Fed’s total MBS acquisitions ...

Gibbs & Bruns, the law firm representing non-agency MBS investors that reached a precedent-setting settlement with Bank of America, is now targeting Wells Fargo and Morgan Stanley. The law firm’s clients issued Wells and Morgan Stanley a notice of non-performance last week identifying covenants in pooling and servicing agreements that the servicers have allegedly failed to perform. “The holders’ notice alleges that each of these failures has materially affected the rights of the certificate holders and constitutes an ongoing event of default in the servicer’s performance under the relevant PSAs,” the law firm said. Bank of America received...