Ginnie Mae production fell substantially in February from January as the government-insured lending market continued to lose steam in the first quarter of 2017. Ginnie mortgage-backed securities issuance fell 24.0 percent from January as fewer purchase and refinance loans were pooled for securitization, bringing February’s total issuance to just $32.2 billion. Year-over-year Ginnie MBS issuance, on the other hand, increased by 6.2 percent. The government-insured market set an all-time record of $545.0 billion in originations during 2016, a whopping 31.0 percent jump from the previous year. That total eclipsed previous records for originations of FHA, VA and rural housing loans guaranteed by the U.S. Department of Agriculture, according to data compiled by affiliate Inside Mortgage Finance. In addition, government-insured lending accounted for a record ... [ 3 charts ]

As Democrats in Congress worked on reforms after the financial crisis, issuers of MBS and ABS repeatedly warned that regulatory uncertainty would hurt the market. With Republicans now looking to roll back parts of the Dodd-Frank Act, industry participants are pushing for risk-retention requirements to remain in place, again citing the potential impact of regulatory uncertainty. “It’s foolish to think that we would try to tear it all down,” said Howard Kaplan, a partner at the law firm of Deloitte & Touche, during this week’s SFIG Vegas conference. Among many other changes, the CHOICE Act from Rep. Jeb Hensarling, R-TX, would repeal...

Secondary market gains headed south in the final three months of 2016, and so far it’s not looking too bright for the first quarter of 2017, which has about four weeks to go before it’s a wrap. According to a new report from Piper Jaffray, gain-on-sale margins declined to an average of 94 basis points in the fourth quarter, compared to a more robust 106 bps in the third. Piper said GOS is currently tracking at about 88 basis points. The research firm’s coverage universe includes...

By creating liquidity in Ginnie Mae mortgage-backed securities, liquidity coverage ratio (LCR) policies have attracted lenders – mostly nonbanks – whose funding relies more on securitizations – toward FHA loan originations, according to a new paper published by academicians. The paper, “Nonbanks and Lending Standards in Mortgage Markets: The Spillovers from Liquidity Regulation,” maintains that such lenders approve more FHA loans because they can sell the loans easily, given the high liquidity of the securitized product. The greater liquidity in Ginnie MBS has resulted in higher market share and eased standards especially for nonbanks and lenders with less deposit funding. It also has led to tighter standards for conventional mortgages, which are eligible for government sponsored enterprise securitization, wrote Pedro Gete and Michael Reher, researchers in the ...

It is two months into 2017, and compliance attorneys are still trying to discern some of the finer nuances of applying the Dodd-Frank Act’s risk-retention requirements to various sectors of the secondary market beyond residential MBS. One such area is structured aircraft portfolio transactions. In a recently issued white paper, attorneys from the Clifford Chance law firm and four other U.S. law firms looked at applying the rules to a typical issuance of securities by a newly formed special-purpose vehicle that owns (or will own) a portfolio of aircraft and related leases. They note...

Rating services appear to be taking differing approaches to rating nonprime MBS backed by new originations. The first nonprime MBS from an affiliate of Invictus Capital Partners received preliminary AAA ratings from Kroll Bond Rating Agency, Morningstar Credit Ratings and S&P Global Ratings. Those three firms did not rate...

Weighing in on President Trump’s recent executive order related to the Dodd-Frank Act, analysts at Moody’s Investors Service said ditching the major mortgage regulations promulgated under the law would be negative for residential MBS unless it’s done carefully. “Any significant repeal of the Dodd-Frank Act’s mortgage-related provisions without effective alternatives would weaken residential RMBS credit quality because these provisions have strengthened the credit quality of mortgage originations, improved servicing practices and bolstered the credit integrity of RMBS structures,” the analysts said in a new report issued earlier this week. Their report then detailed...

FHA and VA borrowers took on slightly greater payment obligations in 2016 than they have in previous years, according to a new analysis and servicer ranking by Inside FHA/VA Lending. The average debt-to-income ratio for FHA loans securitized in Ginnie Mae mortgage-backed securities last year was 40.4 percent, up about half a percentage point from 2015. The average VA DTI ratio nudged up slightly to 38.3 percent. Average credit scores in the FHA program drifted slightly lower, while climbing 1.9 points for VA loans. The differences in credit quality between the two programs remained substantial: the VA attracts borrowers with higher credit scores and lower DTI ratios who take on larger loans. Some 36.3 percent of VA loans backing Ginnie MBS issued last year had credit scores of 740 and up, while just 13.2 percent of FHA loans fell in that category. Meanwhile, 67.1 percent of FHA loans had ...

The Federal Reserve’s Open Market Committee, as expected, held the line on interest rates this week at its first meeting of 2017, but still presumably stayed on track for multiple increases later in the year. What’s new is a recent resurgence of talk about how the central bank will shrink its massive balance sheet and its huge portfolio of agency MBS and debt, perhaps as early as next year. “In view of realized and expected labor market conditions and inflation, the committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent,” the FOMC said. It added that committee members expect that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. The Fed will...

Societe Generale has agreed to pay $50 million to the Department of Justice to settle civil charges alleging it misled investors by promoting and selling securities backed by badly underwritten mortgage loans. According to the DOJ, the French bank made false representations regarding SG Mortgage Securities Trust 2006-OPT2, a $780 million debt issue it organized more than 10 years ago. As part of the settlement, SocGen admitted that many of the loans in the deal were improperly underwritten and should not have been securitized. For example, the bank admitted...