As safe as the qualified mortgage space might appear to be, there have been a number of challenges to address and overcome for smaller institutions originating QM loans intended for sale in the secondary market, according to a representative of one such lender at the American Bankers Association’s 2014 regulatory compliance conference in New Orleans this week. Bruce Schultz, senior vice president and head of secondary mortgage operations for SpiritBank, a family-owned community bank in Tulsa, OK, told attendees he’s heard from several industry peers who have expressed the view that the secondary market ‘would be a slam-dunk’ for his institution under the QM rule because “‘you’ve got automated underwriting.’” Maybe not...

Agency issuance of new single-family MBS edged up slightly from April to May, according to a new Inside MBS & ABS analysis of loan-level data. Fannie Mae, Freddie Mac and Ginnie Mae produced a combined $68.66 billion of new MBS last month, although that was only a 2.4 percent increase over April. There are some positives in the underlying data, however. First, purchase-mortgage volume increases outpaced...[Includes two data charts]

MBS prices fell by roughly 100 basis points this week, but the downdraft could be short-lived thanks to the European Central Bank, according to MBS analysts and other market watchers. Late this week, the ECB cut its main interest rate to a record low 15 basis points, from 25 basis points. But in an unprecedented move, it also trimmed the interest rate it pays to banks on reserves to negative 0.1 percent. The move into negative rate territory is meant...

Economic trends point to continued strong performance for outstanding non-agency MBS, according to Standard & Poor’s. “S&P expects the sector to demonstrate stable characteristics and stable rating trends,” said Jeremy Schneider, a primary credit analyst at the rating service. “Our outlook for collateral performance is strong, and our assessment of the overall sector is stable.” In a report released late last week, S&P said...

Industry representatives and policy wonks diverge in their opinions about whether federal financial regulators will put out a final rule or another proposed final rule as the next step in the long-delayed risk-retention rule for asset securitizers. The qualified residential mortgage designation – which would exempt non-agency MBS from the five percent risk-retention requirement – has been one of the biggest controversies. According to Politico, the Securities and Exchange Commission continues to hold up a final deal because its staff thinks a minimum downpayment requirement for QRM would better protect investors. Under the latest version of the rule, the QRM definition would be synched...

Congressional legislative action – something likely out of reach for at least the next two years – is either a part of the problem or the only solution to unraveling the final fate of Fannie Mae and Freddie Mac, according to two distinctly different schools of thought being argued this week. The rhetorical boxing match pitted Urban Institute Fellow Jim Parrott’s thesis that only a legislative fix by Congress can free the two government-sponsored enterprises from the status quo against Jim Millstein, CEO of Millstein & Co., who contends that the GSEs should emerge recapitalized from conservatorship forthwith, a feat that can and should be executed via “administrative reform.” Parrott fired...

A New York federal judge was out of line and beyond his discretionary authority when he rejected the Securities and Exchange Commission’s proposed $285 million settlement with Citigroup in 2011 stemming from the bank’s alleged mishandling of MBS, an appeals court ruled this week. A three-judge panel of the U.S. Second Circuit Court of Appeals vacated the district court’s order, holding that Judge Jed Rakoff of the Southern District of New York abused his discretion by applying an incorrect legal standard to his review of the settlement. Rakoff refused to accept the deal between the SEC and Citi because it did not contain an admission or denial of guilt. The appeals court held...

Lenders that dabble in loans that don’t pass the qualified-mortgage test are going to be very selective about which borrowers they accept, and the loans are most likely to be held in portfolio, according to speakers at a recent industry conference in New York City. “We have used our balance sheet to retain non-QM loans in certain situations,” said Russell Brady, an assistant vice president at Elevations Credit Union. “This can make sense, but you have to do it in a controlled way with all the controls in place,” he said during a panel at the Secondary Market Conference sponsored by the Mortgage Bankers Association. The QM limit of 43 percent on debt-to-income ratio is...

The Consumer Financial Protection Bureau’s ability-to-repay rule is unlikely to prompt a significant increase in litigation, according to DBRS. The rating service last week released its criteria for non-agency MBS with loans subject to the ATR rule and standards for qualified mortgages. “Although there are no historical ATR claim data to help forecast the rate of borrower challenges, DBRS anticipates that any action against lenders within a securitization trust will be minimal due to the uncertainty of borrower success and significant legal costs that potentially can be incurred.” In addition, third-party due-diligence reviews that confirm ATR compliance and representations-and-warranties obligations that motivate lenders to adhere to underwriting guidelines make litigation less likely, the rating service said. DBRS added...

State regulators considering increasing capital requirements for nonbanks should hold off, according to an analysis by Kroll Bond Rating Agency. With encouragement from the Financial Stability Oversight Council, state regulators are considering prudential regulatory standards for nonbank mortgage companies. “We believe that large nonbank companies, and particularly seller/servicers in the mortgage sector, do not require formal capital requirements and other types of prudential regulation,” KBRA said in a report authored by Christopher Whalen, a senior managing director at the rating service. Nonbank servicers appear...