An increase in interest rates by the Federal Reserve is likely to be accompanied by a change to a Fed program that could have a significant impact on investors’ cost to finance purchases of MBS, according to industry analysts. The Fed could increase interest rates as soon as Dec. 16. In a report released this week, analysts at Deutsche Bank Securities noted that Fed officials have discussed removing a cap on the Fed’s overnight reverse-repurchase program when interest rates increase. “That program will almost surely put...

Two former officials at Standard & Poor’s called on the Securities and Exchange Commission to look for violations of new rules involving rating shopping. The SEC published a final rule with new requirements for rating services in August 2014. In a recent paper, Mark Adelson and David Jacob pushed the SEC to use the new rule to go after rating services that make adjustments to rating criteria in an effort to gain business, with a focus on the structured-finance market. Adelson and Jacob said such rating shopping by issuers has been “widespread” since the mid-1990s. Adelson was S&P’s chief credit officer from May 2008 until December 2011. He is currently the chief strategy officer of The BondFactor Company, which focuses ...

Acting on a new policy that increases the focus on prosecuting individuals for corporate wrong-doing, the Department of Justice is reportedly planning to file criminal charges against executives at JPMorgan Chase and the Royal Bank of Scotland for the alleged pre-crisis sale of non-agency MBS to unsuspecting investors, the Wall Street Journal has reported. According to the report, the DOJ investigations were based on documents that allegedly suggested that shortly before the mortgage meltdown, executives at the two financial institutions securitized mortgages and sold them to investors knowing that the underlying loans were defective. The JPMorgan probe began after prosecutors uncovered crucial evidence from a related civil investigation in 2007: a memo from a bank employee cautioning senior executives about ...

The latest developments in the Structured Finance Industry Group’s effort to revive the non-agency MBS market have been met with praise from many industry participants. However, larger issues continue to constrain activity in the market. SFIG recently released a package of model representations and warranties for non-agency MBS. “I think this effort to standardize reps and warrants is a really important step in helping investors get more comfortable with the sector,” Grant Bailey ...

Menendez Introduces HAWK Amendment in T-HUD Appropriations Bill. The National Association of Realtors recently sent a thank-you note to Sen. Robert Menendez, D-NJ, for introducing an amendment to H.R. 2577, the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act of 2016, to restore HUD’s authority to offer the Homeowners Armed with Knowledge (HAWK) program. Lawmakers who were concerned about the financial condition of the FHA Mutual Mortgage Insurance Fund denied funding for the HAWK program last year in a continuing spending bill, effectively stalling the program for a year. The HAWK program is a key component of the FHA’s Blueprint for Access, which was designed to open up the credit box for underserved borrowers. Specifically, program participants will benefit from reductions in FHA premiums once they complete ...

Commercial banks and savings institutions held a record $1.608 trillion of single-family MBS in portfolio as of the end of the third quarter, according to a new Inside MBS & ABS analysis of call-report data. Banks and thrifts boosted their MBS holdings by 1.6 percent from the end of June, reaching a third consecutive record level. The gain pushed the industry’s market share of single-family MBS to an estimated 25.2 percent. Commercial banks were responsible for ... [Includes two data charts]

The Federal Home Loan Bank System is seeking to boost its share of government-backed lending and the Ginnie Mae market with a new servicing-release option for FHA, VA and rural housing mortgages that are sold into the Mortgage Partnership Finance program. The new feature adds to an existing servicing-retained execution in the MPF Government Mortgage-Backed Securities program. The current servicing-retained component requires participating lenders to service loans they originate and sell into the MPF conduit. The servicing-release option from Nationstar Mortgage, a top-10 mortgage servicer based in Dallas, will provide lenders with greater pricing flexibility so they can become more competitive in the communities they serve, said Matt Feldman, president of the Chicago FHLB. Only FHLBank members that are participants in MPF can use the government MBS program. In order to ...

Publicly traded real estate investment trusts that buy MBS continued to whittle down their positions in government and agency product during the third quarter, a trend that some fear may have no bottom. Market leader Annaly Capital Management trimmed its MBS holdings to $66.3 billion during the period, a 1.9 percent sequential decline, but an ugly 18.6 percent drop compared to the third quarter of last year. It is investing more of its cash in commercial product. Number two ranked American Capital Agency Corp. was...[Includes one data table]

The Structured Finance Industry Group put out the third edition of its RMBS 3.0 “Green Papers” initiative early this week, featuring dozens of model representations and warranties for new non-agency residential MBS, including a range of proposed standardized constructs. “This release substantially builds upon our growing series of Green Papers, which are aimed at restoring confidence to the ‘private label’ RMBS market,” the trade group said. The first and second editions were released in 2014. The 39 model reps and warrants included in the third edition complete...

Three separate issuers of jumbo MBS shopped deals in the past week, giving a jolt to a market that has been somewhat subdued since the end of the first quarter. Industry analysts suggest that while liquidity for new jumbo MBS remains limited, the deals can be a good investment. Redwood Trust is set to issue a somewhat unusual $337.08 million jumbo MBS, Credit Suisse is preparing a deal and Five Oaks Investment issued a $251.27 million security this week, according to rating reports and filings with the Securities and Exchange Commission. At the end of October, Two Harbors Investment issued...