Commercial banks and savings institutions continued to load up on residential MBS during the second quarter of 2016, pushing their investment in the sector to a new high, according to a new analysis and ranking by Inside MBS & ABS. Banks and thrifts reported MBS holdings of $1.684 trillion as of the end of June, a 1.4 percent increase since the previous quarter. These are long-term holdings in banks’ held-to-maturity and available-for-sale portfolios. The industry held another $46.02 billion of MBS in their trading accounts. Not surprisingly, all of the gain came in agency MBS, particularly pass-through securities issued by Fannie Mae and Freddie Mac. The industry’s aggregate holdings of these securities, $867.64 billion, were up 4.1 percent from the ...

Fitch Ratings released criteria for rating MBS backed by nonperforming loans late last week, saying it will cap ratings for such deals at “A” due to “the idiosyncratic and adverse-selection risk.” As mortgage performance has improved in recent years, issuance of MBS backed solely by nonperforming loans has been limited. However, Fitch said it considers a transaction as an NPL issuance if more than 10.0 percent of the collateral is 60+ days delinquent at the time of issuance. The rating service will require such MBS to meet a number of standards to receive a low investment-grade rating of “A” or “BBB,” including a sequential-pay structure and application of available funds to pay interest to the rated notes. “Absent these structural ...

With balances on non-agency MBS issued before the financial crisis falling to levels where clean-up calls can be initiated, clean-up call activity is rising with prospects for further growth. Rights to clean-up calls on non-agency MBS can typically be exercised when the outstanding balance of the MBS is lower than 10.0 percent of the original balance. The owner of the call rights (typically the master servicer) can purchase loans from the pool at par plus expenses and make a profit by selling or re-securitizing performing loans at a premium and retaining distressed loans to modify or liquidate. According to Bank of America Merrill Lynch, about 37 deals have been called this year totaling about $800 million in unpaid principal balance ...

The average daily trading volume in agency MBS totaled $219.3 billion in July, the best reading in 18 months, according to the Securities Industry and Financial Markets Association. However, the sequential improvement was a mere 3.30 percent. Then again, any gain is better than none. For all of 2016, the worst reading came in March at $189.4 billion. The strong showing (relatively speaking) comes as the primary market has produced a better-than-expected $890 billion for the first six months of 2016. Some industry executives believe loan originations could top $2 trillion this year, which would increase the supply of outstanding MBS. For the past few years there has been a debate in the industry about the significance of lower trading ...

A ruling late last year by a state appeals court in New York threatens to upend the practice of providing “gap” or “bridge down” representations and warranties on residential MBS, according to a brief submitted on behalf of the Securities Industry and Financial Markets Association. SIFMA asked the New York State Court of Appeals to reverse the lower court’s ruling in Bank of New York Mellon v. WMC Mortgage. Lawyers at the law firm of Stroock & Stroock & Lavan submitted an amicus brief to the N.Y. State Court of Appeals on behalf of SIFMA regarding the case. “The court’s resolution of this issue could have...

Fannie Mae’s new securitization program for modified single-family mortgages could generate as much as $24 billion in issuance, according to an analysis by Bank of America Merrill Lynch. The program will create “an asset class meriting investor focus,” BAML noted. Fannie recently released...

Ginnie Mae issuers produced a hefty $125.42 billion of new single-family mortgage-backed securities during the second quarter of 2016, according to a new Inside FHA/VA Lending analysis of MBS data. The government-insured market continued to run hotter than the Fannie Mae and Freddie Mac sector. Ginnie MBS issuance – including FHA’s home-equity conversion mortgage program – was up 31.1 percent from the first quarter, while single-family MBS issuance by the two government-sponsored enterprises rose 26.2 percent over the same period. Excluding HECM, Ginnie issuance was up 31.5 percent in the second quarter. While FHA forward mortgages continued to be the biggest source of collateral, the VA program actually produced a bigger gain, 42.4 percent, from the first to the second quarter. VA production saw a major boost in refinance activity, up 58.4 ... [Includes four charts ]

Fitch Ratings recently updated its U.S. residential mortgage-backed securities rating criteria, partly to include adjustments to due diligence grades having to do with the CFPB’s Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure rule, otherwise known as TRID. Fitch said it expects that participating third-party due-diligence review firms will determine whether mortgages being reviewed for inclusion in MBS have been closed in compliance with the disclosure rule. Further, the ratings service said it would request that due diligence firms grading loans determine whether the findings are more likely to carry statutory damages and assignee liability or just assignee liability. When it comes to grading TRID loans under the revised criteria, Fitch said unresolved errors that carry an increased ...

Ginnie Mae has good reason to be concerned about rapid demographic change in its relatively small issuer community. Nonbank institutions – many of them relatively newly formed and based on nontraditional business models – are taking over the market. Nonbank issuers accounted for a whopping 69.4 percent of Ginnie’s issuance of single-family mortgage-backed securities during the first quarter of 2016. A year ago, their share was 64.6 percent. Two years ago it was 46.7 percent. With those kinds of gains on the production line, it’s not hard to see why nonbanks are claiming a growing share of Ginnie servicing outstanding. At the end of March, nonbanks owned 46.7 percent of Ginnie single-family mortgage servicing rights, up a hefty 11.5 percentage points in one year. That rate of growth can’t be accomplished just by producing new MBS because the servicing market simply doesn’t grow that fast. (Although the Ginnie market has grown significantly faster than any other segment of ... [ 2 charts ]

Ginnie Mae securitization of rural home loans got off to a wobbly start in the first quarter of 2016 as securitization volume fell 13.8 percent from the prior quarter, according to an Inside FHA/VA Lending analysis of Ginnie data. Approximately $3.9 billion in loans with a USDA guarantee were securitized during the first three months, with the top five issuers accounting for $2.1 billion of mortgage-backed securities produced by the segment during the period. USDA securitization volume dropped 9.2 percent year over year. Top USDA issuer Chase Home Finance accounted for $1.2 billion of securitized rural housing loans, while PennyMac, in distant second place, finished the quarter with $378.5 million. Wells Fargo ($294.0 million), Pacific Union Financial ($122.8 million) and Amerihome Mortgage ($102.2 million), in sequential order, comprised the rest of the top five issuers. Pacific Union climbed over ...