The post-crisis market environment that fueled the mortgage loan buyback dynamic continues to improve, and with it, the business relationships between lenders, investors and the government-sponsored enterprises. However, the repurchase and indemnification phenomenon has not gone away and is unlikely to do so for the foreseeable future. That means market participants need a comprehensive strategy to limit their exposure to litigation and, when that fails, to restrict the damage that does ensue, according to some top industry attorneys. This may be particularly important for correspondent lenders. “In order to go ahead and get a good perspective for what your company’s potential risk is, how do you go...

JPMorgan Chase and Redwood Trust remained the only two active issuers of prime non-agency mortgage-backed securities as of the end of the third quarter of 2016, according to a new ranking and analysis by Inside Nonconforming Markets. A total of $4.07 billion in prime non-agency MBS was issued during the third quarter of 2016, more than five times the volume issued in the previous quarter. However, through three quarters this year, prime MBS issuance ... [Includes one data chart]

The sample deal-agent agreement released by non-agency industry participants in September aims to provide a template for a third party that would protect investors in future non-agency mortgage-backed securities. Some industry participants warn that there are still more issues that need to be addressed, including a potential overlap in the duties for a deal agent and tasks traditionally handled by trustees and master servicers. At the recent ABS East conference produced by ...

Ginnie Mae rode a surging purchase-mortgage market and heavy refinance activity to new production records during the third quarter of 2016. The agency issued a whopping $145.14 billion of single-family mortgage-backed securities during the third quarter, according to an Inside FHA/VA Lending analysis of MBS disclosures. That figure is based on pool-level disclosures that reveal exact principal balance amounts and it includes securities backed by FHA home-equity conversion mortgages. The data in the table below are based on truncated loan-level disclosures and do not include HECM activity. New Ginnie MBS issuance in the third quarter was up 15.7 percent from the previous quarter. Ginnie MBS production set three consecutive monthly records during the third quarter, culminating in a huge $52.46 billion month in September. Purchase-mortgage activity was the key driver, but the ... [ 4 charts ]

Requiring an undercapitalized issuer to repurchase uninsured performing mortgages out of a mortgage-backed securities pool could increase risk to the federal government, warned Ginnie Mae. Responding to an adverse audit report from the Department of Housing and Urban Development’s Office of the Inspector General, Ginnie said that while it generally accepts the IG’s recommendations, forcing an undercapitalized issuer to buy out performing loans and either hold them in portfolio or sell them at a substantial loss would put the government at greater risk. “This is something we need to be alert to in certain cases,” the agency said. According to the report, Ginnie improperly allowed more than $49 million of single-family mortgages with terminated insurance to remain in its MBS pools for more than one year without obtaining FHA coverage. The IG warned Ginnie could be on the ...

A boom in ABS backed by unsecured consumer loans requires closer scrutiny, according to analysts at Fitch Ratings. Marketplace lenders have boosted the issuance of such ABS in recent years, though the rating service warned that deal performance is difficult to predict. “Many firms in this space have legitimate value propositions and apparent technological advantages,” Fitch said. “However, they have yet to prove their underwriting merit.” Since September 2013, at least 31 ABS totaling $4.60 billion backed by consumer loans from marketplace lenders have been issued...

The Department of Veterans Affairs is drafting a new policy to address ongoing confusion about its Interest Rate Reduction Refinance Loan program and ease investor anxiety. The uncertainty among VA lenders stems from the treatment of IRRRLs under the VA’s interim final rule defining what constitutes a “qualified mortgage.” That rule took...

Foreign investors, commercial banks and mutual funds all beefed up their holdings of agency MBS during the second quarter of 2016, according to a new Inside MBS & ABS analysis. The Federal Reserve remained the biggest investor in the agency MBS market with $1.744 trillion on its books at the end of June. That accounted for 29.7 percent of the $5.867 trillion of single-family agency MBS outstanding at that time, but it was down 0.5 percent from the end of March. The central bank’s MBS holdings vary slightly in the Fed’s weekly snapshots as pending transactions wait to clear, but its game plan is to hold its portfolio steady by reinvesting principal payments. The single-family agency MBS market grew...[Includes two data tables]

The effort by some non-agency MBS investors to create an entity to protect investors took a step forward as a sample deal-agent agreement was circulated late last week in advance of the ABS East conference in Miami. A deal agent would be tasked with protecting the interests of investors in non-agency MBS, including duties of care and loyalty. The leaders of the effort, James Callahan, a principal at Pentalpha Global and Alessandro Pagani, head of securitized assets at Loomis Sayles & Company, said the market should adopt the agreement as the template for new non-agency MBS. However, the sample agreement leaves...

The complex financing arrangements used by certain investors and a lack of clarity from federal regulators can make it difficult to determine the entity responsible for meeting risk-retention requirements in some MBS and ABS, according to Charles Sweet, senior counsel at the law firm of Morgan Lewis. The Dodd-Frank Act generally required the sponsor of a security to retain at least 5.0 percent of the risk from the security. Sweet said determining the sponsor of an MBS or ABS can be fairly straightforward when one company originates the assets, services the receivables and initiates securitization, as in the case of an ABS backed by automobile retail contracts from a captive finance company of a car manufacturer. However, where securitization roles are more dispersed, Sweet said...