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...

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 ...

In 2016, retail sales conducted over the Internet boomed while traffic at America’s shopping malls remained tepid, raising new concerns about CMBS deals where the collateral includes a troubled “anchor” tenant. According to figures compiled by Morningstar, roughly $49 billion of CMBS transactions are backed by regional malls. When the anchor closes, it raises all sorts of concerns about whether the entire mall will be able to survive. (Earlier this year, Sears and Macy’s separately announced they will close a total of 218 stores.) “As online shopping, the diminishing importance of department stores, and store closures all contribute...

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 ...

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...

Moody’s Investors Service agreed to a $863.79 million settlement with the Department of Justice, 21 states and Washington, DC, late last week. The settlement focused on rating activities between 2004 and 2010 involving residential MBS and collateralized debt obligations. According to the settlement, Moody’s used an internal ratings model for most tranches of certain residential MBS that was more lenient than its published guidelines, allowing for lower credit enhancement levels than what the published guidelines required. The internal model was based...

The residential MBS market is expected to be healthy this year, according to some ratings service analysts. But the new president is the big unknown, market participants say. According to analysts at Fitch Ratings, the rating outlook for U.S. RMBS they rate is auspicious, as they expect asset performance trends to stay positive thanks to support from solid, if somewhat uneven, gains in home prices. “Although a number of legacy transactions continue to face negative rating pressure due to declining loan counts and tail risk, rating upgrades outnumbered...

Credit quality for the loans backing unique warehouse-funding securitizations from Jefferies Funding remains strong, according to Moody’s Investors Service. One of the risks was that weaker collateral could be included in the transactions as time passed. The $225.0 million Station Place Securitization Trust 2016-1 received Aaa ratings from Moody’s last February and a $210.0 million 2016-3 transaction issued in May garnered an with Aaa rating. The rating service evaluated the deals recently as the 2016-1 securitization is set to pay down next month. “To date, there has been...

With financial markets awaiting, with some uncertainty, the public policy positions of the incoming Trump administration and the new Congress, industry analysts say ABS investors can expect most sectors to turn in stable performances in 2017. “As we look back on 2016 and consider the 2017 global structured finance outlook, most markets and their credit conditions seem favorable, and in some cases, even ideal. However, 2017 has many unknowns, especially the specific policies and priorities that will be adopted by the new U.S. administration,” said analysts with S&P Global Ratings in a recent outlook report. “Some would suggest government-sponsored enterprise privatization is possible, risk retention could be revised, and an appropriate/globally consistent capital treatment for structured finance products could be approved.” Further, “For the most part, we expect...