The Basel Committee on Banking Supervision issued a revised proposed standardized approach for gauging credit risk, making adjustments suggested by industry participants. Among the revisions was the allowance for certain banks to use external credit ratings as part of determining capital requirements for credit risk. While regulators in various countries appear likely to adopt the proposed use of credit ratings, U.S. banking regulators wouldn’t be able to due to provisions in the Dodd-Frank Act. Anticipating the divergence among regulators, the BCBS noted that banks would classify exposures into three different buckets, provided that certain minimum criteria are met. U.S. banking regulators noted...

The supply of home mortgage debt outstanding increased by 0.5 percent during the third quarter of 2015, following a similar modest gain during the previous period. A total of $9.952 trillion of single-family mortgage debt was outstanding at the end of September, according to a Federal Reserve report released late last week. It represented a second consecutive quarterly increase, something the mortgage servicing market has struggled to accomplish during the long contraction that started back in 2008. Most of the increase came...[Includes one data table]

Fannie Mae and Freddie Mac sold $12.58 billion of credit risk through their popular back-end risk-transfer deals during 2015, according to a new Inside MBS & ABS tally of new issuance in the Connecticut Avenue Securities and Structured Agency Credit Risk platforms. While that was up 16.8 percent from the total for 2014, observers continue to call for more diversification in the government-sponsored enterprises’ risk-transfer activities, and greater transparency. The Federal Housing Finance Agency “should require...[Includes one data table]

Separate appeals courts this week vacated legal victories that the federal government achieved in the aftermath of the financial crisis. The cases involve former officials at State Street Bank and Trust and a former MBS trader at Jefferies & Company. In 2014, commissioners of the Securities and Exchange Commission voted 3-2 to reverse a ruling by the SEC’s Chief Administrative Law Judge involving James Hopkins, a former vice president and head of North American product engineering at State Street, and John Flannery, a former CIO at the bank. The ALJ had dismissed...

Standard & Poor’s rated some $84.64 billion of non-mortgage ABS issued in the U.S. during the first nine months of the year, making it the top rating service in the segment, according to a new ranking by Inside MBS & ABS. S&P was well represented in all the major ABS sectors, with its strongest showing in credit card ABS, where it rated 73.4 percent of 2015 issuance based on dollar volume. Fitch Ratings was...[Includes two data tables]

The securitization of non-agency, nonprime residential loans appears to be heating up as 2015 draws to a close, but bond sizes continue to be – expectedly – quite small. Then again, that’s not the point of these deals, lending executives and investment bankers involved in the market, argue. The idea is to set the table by issuing securities backed by loans that fail to meet the qualified-mortgage test in the hope that, down the road, bond sizes will increase. Earlier this month, according to a report by Bloomberg, Lone Star Funds issued...

Industry analysts are generally optimistic that most of the large consumer ABS sectors will probably see a stable, positive year in 2016. However, they’re not very gung-ho about what kind of a year the government-backed student loan space is going to have. Analysts at Wells Fargo Securities think that consumer ABS should offer good relative value next year, based on solid credit fundamentals and robust structural protections. “We expect spreads to tighten in 2016 as the primary market recovers and the yield curve flattens along with Federal Reserve tightening,” they said in a recent outlook. “Spreads are likely to stay volatile and event-driven.” Further, “Weak demand and poor liquidity have been...

A growing number of loans are being dropped from commercial MBS deals before they reach securitization, according to Fitch Ratings. While most of the loans dropped had lower balances, under $20 million, the rating service is concerned that the unusually large amount of loan drops over the last 12 months could point to a lack of due diligence by lenders prior to sending the initial loan information to rating agencies or B-piece buyers. For example, in 28 Fitch-rated deals for the 12-month period ending June 30, 2015, about 1,000 loans were dropped, the rating service said. That number represented 30 percent of the final transaction amount. “There is...

Investor demand for rated securitizations backed by re-performing and nonperforming mortgages is increasing both in the U.S. and in Europe, according to senior analysts at Moody’s Investors Service. The analysts noted a strong pipeline of RPLs in the U.S. securitization market as investors purchase NPLs and turn them into re-performing loans. Max Saury, a senior analyst with Moody’s Structured Finance Group, estimates the current NPL market at $300 billion, excluding nonperforming non-agency MBS. There have been...

The average daily trading volume in agency MBS fell to $180.2 billion in November, hitting a new low for the year, according to the Securities Industry and Financial Markets Association. Such a low reading is indicative of a lack of liquidity in the market, but by now, investment bankers and policy makers are no longer wringing their hands about the number. The complacency, in part, is fueled...