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...

Final Civil Action: Primary Residential Mortgage. The Department of Housing and Urban Development’s Office of the Inspector General has recommended that the department’s Office of Legal Counsel acknowledged $3.13 million of a $5 million settlement agreed to by Primary Residential Mortgage is due HUD. Primary agreed last September to a $5 million settlement with the Department of Justice to resolve allegations of failing to comply with FHA requirements in connection with its origination, underwriting and endorsement of 100 FHA-insured loans. Primary’s settlement is neither an admission of guilt nor assumption of any liability that may arise from the flawed transactions, the IG said. As of Oct. 4, 2016, the settlement amount due HUD had been paid in full. Moody’s Downgrades $243 Million of FHA/VA Residential MBS. Moody’s Investors Service has downgraded the ...

This year, the commercial MBS market will see the influence of the newly effective Securities and Exchange Commission rule on CMBS risk retention, which likely will mean higher credit quality but also a degree of unpredictability when it comes to issuance, according to industry analysts. At Wells Fargo Securities, analysts who cover the CMBS space are forecasting non-agency issuance of $65.0 billion in 2017. “While CMBS issuance has historically grown with the economy, this is not exactly the typical cycle,” they said in a recent client note. “Economic growth has been uneven and property fundamentals seem to be maturing.” Requiring CMBS issuers to retain at least 5 percent of the credit risk adds...

Higher capital charges and the cost of capital associated with risk retention mandated by the Dodd-Frank Act will make commercial MBS less competitive with portfolio lending for loans backed by high-quality collateral, according to a new report from Moody’s Investors Service. The report stems from a Moody’s fourth-quarter 2016 analysis of three conduit transactions that were structured to comply with risk-retention prior to its implementation on Dec. 24, 2016. In each of the transactions, issuers retained 5 percent of either the securities or the collateral pool’s cash flows. In addition, the Moody’s report noted...

Among the many impediments to a revival of the non-agency MBS market is what potential investors see as a lack of transparency from issuers. To address the issue, the Institute for Financial Transparency has created a “transparency label” that will identify non-agency MBS that include adequate disclosures. Richard Field, director of the IFT, detailed the Transparency Label Initiative in a recent study published by the National Association of Insurance Commissioners and the Center for Insurance Policy and Research. “While there has been a significant amount of activity surrounding disclosure for structured finance securities, these securities still remain...

The Blackstone Group this month filed its long awaited initial public offering document on its Invitation Homes unit, a pioneer in single-family rentals and securitization of these assets. The 1,300 page Form S-11 is chock full of financial details on the real estate investment trust, including the revelation that the company continues to lose money. Through the first nine months of 2016 – the latest available data – Invitation Homes posted a net loss of $51.6 million compared to a $121.7 million loss in the same period a year earlier. The numbers and commentary in the filing indicate...