Moody’s Investors Service is warning that the booming market for subprime auto ABS is poised to potentially overheat as growing demand could push lenders to loosen underwriting standards to boost volume, repeating what occurred during the 1990s. A recent Moody’s report cites emerging parallels between the U.S. subprime auto lending mar-ket today and the early 1990s when investor capital flocked into the sector by charging high loan rates while enjoying low funding costs. When the ‘90s lending boom went bust, net losses in subprime auto ABS jumped from under 3 percent in early 1995 to over 10 percent in 1997, according to Moody’s.

In response to the Federal Housing Finance Agency’s request for comments on its recent strate-gic plan, the American Securitization Forum put out a white paper this week spelling out the mechanics and potential benefits of a blueprint to transition to a single agency security that could be issued by Fannie Mae and Freddie Mac. “Implemented correctly, a single agency security could benefit all participants in the mortgage market, including borrowers, originators, investors and the taxpayer,” said ASF Executive Director Tom Deutsch. Current trading markets for Fannie MBS and Freddie PCs are...

Nationstar Mortgage LLC last week finalized its acquisition of more than $63.7 billion worth of servicing assets from Aurora Bank.Aurora Bank, a subsidiary of Lehman Brothers, has been carved up to repay creditors of the bankrupt Wall Street firm that was a major player in the non-agency MBS market. Ocwen Financial had earlier purchased $1.8 billion in commercial servicing rights from Aurora. The Aurora mortgage servicing portfolio is comprised of 75 percent non-conforming loans in non-agency MBS and 25 percent conforming loans in Fannie Mae and Freddie Mac pools, according to...

A New York state appeals court last week upheld a lower court ruling which dismissed an investor group’s attempt to overturn Bank of America’s proposed $8.5 billion MBS settlement. The five-judge panel of New York’s First Department Appellate Division affirmed Judge Barbara Kapnick’s March 28 decision to dismiss the complaint brought by Walnut Place LLC and related entities. Walnut Place, which represents investors that bought about $1.4 billion of Countrywide non-agency MBS, filed suit in February 2011 claiming Countrywide made false representations on nearly 66 percent of the 2,166 mortgage...

A subsidiary of Credit Suisse Group issued its second non-agency jumbo mortgage-backed security of the year last week. The transaction was backed by $425.09 million of jumbo mortgages, largely originated by MetLife Home Loans, which ceased originations at the beginning of this year. The privately-placed deal – CSMC Trust 2012-CIM2 – received AAA ratings from Standard & Poor’s and DBRS with credit enhancement of 8.25 percent on the AAA tranche. S&P also placed a AAA rating on CSMC Trust 2012-CIM1, the $741.94 million ...

Loan modifications performed on mortgages in bank portfolios perform much better than mods on mortgages included in non-agency mortgage-backed securities, according to an analysis by Inside Nonconforming Markets of new data from the Office of the Comptroller of the Currency. The performance varies significantly even as the two types of non-agency mortgages receive the vast majority of principal reduction loan mods. The 12-month re-default rate on mods implemented from 2008 through the first quarter of 2011 was ...

Non-agency mortgage-backed security investors strongly oppose a proposal in California to reduce principal for borrowers with negative equity by acquiring mortgages via eminent domain. The proposal could set a troubling precedent according to non-agency MBS investors, who are still considering options to prevent such seizures. In June, San Bernardino County along with two cities in the county, Ontario and Fontana, approved a resolution that would allow the municipalities to acquire mortgages with negative equity using eminent domain ...

Subprime mortgage-backed securities offer returns of at least 10.0 percent per year for selective investors, according to Bill Roth, co-CIO at Two Harbors Investment. “We are able to assume the default of a significant portion of borrowers who are currently making their payments, assume a declining housing market and still be able to earn an attractive yield,” Roth said last week during a webinar hosted by the real estate investment trust. He added that home prices could decline by another 20 percent in the next year and ...

Compensation for non-agency mortgage-backed security servicers should be adjusted and the industry should adopt practices from commercial MBS servicing, according to Morningstar Credit Ratings. The firm that recently established its non-agency MBS rating capabilities said enhanced servicing could help revive the issuance of non-agency MBS. “Without these reforms it may prove very difficult to attract investors back into the fold of private-label residential mortgage securities given the weaknesses exposed in ...

Given the features of the enhanced FHA streamline refinancing product, investors will be focusing on the FHA low mortgage-insurance premium (MIP) pools in the coming months, according to analysts with Barclays Research. Barclay’s analysts estimate that 27 percent of outstanding Ginnie Mae MBS pools are eligible for streamline refinancing, which could translate to $36 billion in new annual Ginnie Mae issuance. Approximately $293.0 billion of Ginnie Mae’s $1 trillion-plus 30-year loan pools were originated before May 2009, analysts said. About 79 percent of the collateral underlying the pools are ...