Bank of America’s pending $8.5 billion settlement with non-agency MBS investors appeared to gather some momentum last week following a BofA-favorable ruling by a New York state court. New York State Supreme Court Justice Barbara Kapnick ruled the case will move forward under Article 77 rather than a broader plenary action sought by investors opposed to the amount of the settlement. The proposed settlement reached last June with 22 institutional investors would resolve BofA’s liability related to non-agency MBS issued by Countrywide. Supporters of the settlement, including the trustee, Bank of New York Mellon...

Although Fannie Mae and Freddie Mac have begun buying the latest generation of Home Affordable Refinance Program mortgages with loan-to-value ratios exceeding 125 percent, a number of lenders are holding these loans in the pipeline until the government-sponsored enterprises open the spigot on securitization options for these loans. According to the Federal Housing Finance Agency, Fannie and Freddie purchased 1,548 of the high LTV HARP loans in February. FHFA Senior Associate Director Meg Burns said during an Inside Mortgage Finance webinar this week that a similar volume of 125+ LTV loans were...

Fitch Ratings has placed 157 residential MBS classes serviced by Residential Capital on Rating Watch Negative as the ailing subsidiary of Ally Financial slid closer to bankruptcy. The rating action came on the heels of a Fitch downgrade of ResCap’s issuer default rating to ‘C’ from ‘CCC’ on April 18. In addition, Fitch placed GMAC Mortgage’s servicer rating on Rating Watch shortly before the adverse rating action against ResCap. Fitch said the coordinated rating actions reflect the current uncertainty for the servicing portfolio due to the growing possibility of a bankruptcy or debt restructuring for...

Short sales on mortgages included in non-agency mortgage-backed securities have increased sharply in the past year, as a percentage of total distress property dispositions, according to analysts at Deutsche Bank Securities. The loss mitigation technique is seen as beneficial for borrowers, portfolio servicers and non-agency MBS investors, especially compared with foreclosure costs and timelines. “Short sales typically result in faster resolution and significantly higher principal recovery,” the analysts said. Short sales accounted for about ...

The Obama administration’s Residential MBS Working Group, set up in January to probe misconduct that drove the financial crisis, is apparently trying to tap the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to make such cases easier to bring. Although it hasn’t been used that much, the appeal of pursuing criminal investigations under FIRREA is apparently the relatively lower burden of proof than bringing more traditional criminal charges. Also, FIRREA has a longer statute of limitations than do other finance-related laws, along with the potential for large fines...

The Treasury Market Practices Group this week issued new guidance on the system of charges for failed agency MBS trades that went into effect earlier this year, hoping to address lingering industry concerns about the voluntary program. The group acknowledged that market participants will likely see an increase in operational expenses from the system, but participants should see a decline in the amount of resources they have to commit to addressing these issues as the number of failed trades declines. For the agency MBS market, the TMPG said its recommended two-day resolution period should allow...

A Chicago police officers’ pension fund has filed suit against Bank of America and U.S. Bancorp, claiming that the two banks failed to protect investors during their turn as MBS trustees and violated an obscure, seven-decade-old federal securities statute. The lawsuit, brought last week by the Chicago Policeman’s Annuity & Benefit Fund, said that BofA, and later U.S. Bank as successor trustee, “regularly disregarded their contractual and statutory duties” by failing to oversee some 41 Washington Mutual trusts backed by home loans. “By failing to perform their duties, defendants have caused MBS holders...

Wells Fargo and JPMorgan Chase reclassified more than $3 billion of second-lien mortgages as nonperforming loans in the first quarter of 2012, a move other banks have copied. Both Wells and JPMorgan said that federal guidance from late January was behind the change. Wells characterized $1.7 billion of subordinate home-equity loans as nonperforming and JPMorgan assigned $1.6 billion to that status. “We do not view this as a material shift in the performance of these loans or the reserving methodology,” Fitch Ratings wrote. “However, increased regulatory scrutiny of second liens may continue to...

A subsidiary of Credit Suisse Group issued a $741.94 million non-agency jumbo mortgage-backed security at the end of March, the first jumbo issuance by a company other than Redwood Trust since 2008. CSMC Trust 2012-CIM1 included some unique characteristics prompting criticism from Fitch Ratings and speculation about whether Credit Suisse will issue more non-agency MBS. Standard & Poor’s and DBRS placed AAA ratings on the senior bond in the privately-placed deal based on 8.00 percent credit enhancement. Fitch – which was paid to provide feedback on the deal but ultimately was not selected to rate the deal – said the credit enhancement for the AAA tranche should have been 9.75 percent ...

Credit Suisse has joined Redwood Trust to push the comeback of the non-agency MBS sector with a new public issue, while Springleaf Financial has put together another securitization backed by seasoned subprime mortgages. The Credit Suisse transaction, CSFB Mortgage Securities 2012-CIM1, is backed by $1.4 billion of prime residential mortgages, 82 percent of which had been originated by MetLife Home Loans. The deal sparked some controversy among rating services as Fitch Ratings questioned whether it had enough credit enhancement to cover risks related to property valuations on many of the...