It was a bad litigation week for MBS issuers after a federal regulator and a federal judge filed lawsuits and certified a class action, respectively, on behalf of institutional investors that lost billions of dollars when the collateral underlying the securities dropped in value. On June 20, the National Credit Union Administration, acting as liquidating agent for five failed credit unions, filed lawsuits against JPMorgan Securities and RBS Securities for allegedly misrepresenting the risks of MBS investments and systematically disregarding underwriting guidelines. The NCUA is seeking to recover more than $800 billion in MBS losses that led to...

Expect the $11 trillion residential mortgage market to continue struggling to find its footing as market watchers anxiously await for an improved economy and employment picture to revive the sector from recession-induced stupor, according to the Aite Group. Although the residential mortgage market will “eventually” come back as the economy improves, the ease and speed with which the mortgage-backed securities market recovers is highly dependent on the structural and regulatory forces governing MBS securitization, particularly as it relates to ...

Four more executives have been handed down jail terms for their role in a $2.9 billion fraud scheme that defrauded Freddie Mac, among others, and contributed to the failures of Colonial Bank and Taylor, Bean & Whitaker.

The proposed rule on risk retention for MBS and ABS needs to be re-drafted and published again for another round of public comment because many definitions are unclear and, as it stands now, the proposal is a viable threat to the securitization market, according to industry groups. Although federal regulators recently extended the comment period on the proposal, both the Se-curities Industry and Financial Markets Association and the American Securitization Forum submitted detailed critiques of the plan late last week. “SIFMA has described...

New federal restrictions on mortgage broker compensation will likely add momentum to the shift away from wholesale mortgage production programs and ultimately dampen MBS prepayment speeds, according to an analysis by Barclays Capital. Most major primary market lenders have been moving away from the broker market since the housing sector began to crumble in 2007. According to Inside Mortgage Finance, an affiliated newslet-ter, the broker share of new mortgage originations peaked in 2005 at 31.3 percent of primary market lending. Between 2005 and 2007, brokers accounted...

The Federal Reserve Bank of New York last week sold only $1.9 billion of the initial $3.8 billion of non-agency MBS up for auction out of its Maiden Lane II portfolio. On March 30, 2011, the NY Fed announced that through its investment manager, BlackRock Solutions, it would begin the process of selling assets in the MLII portfolio both individually and in segments “over time as market conditions warrant through a competitive sales process.” Maiden Lane was created to bail out American International Group during the financial crisis and acquired...

The supply of single-family MBS outstanding in the market declined again in the first quarter of 2011, hitting its lowest level since the third quarter of 2007, according to an Inside MBS & ABS analysis of new agency data. Single-family MBS totaled $6.564 trillion as of the end of March, down 0.4 percent from the end of 2010. The single-family MBS market peaked in the third quarter of 2009 at $6.981 trillion and has been in steady decline since then. That’s largely because the supply of home loan debt has been declining since early 2008 as house values have eroded, cash-out refinance activity has...[includes one data chart]

With fears that too few qualified residential mortgages will be originated to support a strong securitization market, the American Securitization Forum proposed that mortgage-backed securities should be allowed to include a blend of QRMs and non-QRMs. MBS issuers also called for loosened underwriting requirements for certain non-QRMs.The proposal was included in the ASF’s comment letter to federal regulators regarding proposed risk-retention rules. Comments were initially due last week but federal regulators recently extended...

Rating agency DBRS has clarified its position on several key provisions following a review of market comments on its exposure draft on third-party due diligence criteria for U.S. residential MBS. Not all firms can produce 36 months of payment history on seasoned home loans, particularly with respect to recently purchased home loans. Hence, verification of the pay histories of loans seasoned more than 18 months up to less than 36 months will be allowed...

The Federal Housing Finance Agency last week issued a final rule regarding the FHLBanks which limits the Banks’ mortgage-backed securities holdings, especially non-agency MBS. In its notice, published in the May 20 Federal Register, the FHFA said it is re-organizing and re-adopting existing investment regulations that were previously issued by the Federal Housing Finance Board. The final rule will retain the Finance Board’s Financial Management Policy provision limiting MBS holdings to 300 percent of a Bank’s capital. “Contrary to suggestions that the 300 percent of capital limit was inflexible and outdated, FHFA believes the limit reasonably serves to control Bank investment activity that does not...