A scathing criticism of the way the Federal Housing Finance Agency and Freddie Mac handled a $1.35 billion settlement with Bank of America could cause the regulator and the government-sponsored enterprises to tighten repurchase enforcement – and consequently inflate the buyback problem, according to litigation experts. Speaking on a recent webinar hosted by Inside Mortgage Finance, experts said a report by the FHFA’s Office of the Inspector General which found flaws in the BofA settlement approval process, could push the GSEs and their regulator to lean harder on major lenders to repurchase “bad loans.” This, in turn, could...

Investors in non-agency mortgage-backed securities would rather not fight in court to enforce buybacks, according to Talcott Franklin, shareholder of his namesake law firm. However, Franklin said litigation has been necessary because servicers – largely those affiliated with lenders or MBS issuers – have not done enough to prevent losses. “If the banks can get it together on the servicing side and try to reduce these losses, that is going to be the best way for them to proactively reduce these [buyback] risks,” he said this week during a webinar hosted by Inside Mortgage Finance Publications. ...

Debt-for-equity, a strategy commonly used in buyout deals among companies in Europe, is being floated as an idea to help underwater U.S. homeowners and the lenders avoid taking bigger losses if the mortgage ends up going to foreclosure. In a debt-for-equity arrangement, the borrower would refinance an underwater mortgage for a new loan that reflects the house’s current market value as an alternative to going to foreclosure. In return for reducing the loan amount, the lender takes an equity position that allows it to share in any future house price appreciation.Proponents say...

Banks, thrifts and credit unions expanded their stakes in the residential MBS market over the first half of 2011 as most other major investor classes pulled back from the market, according to a new analysis by Inside MBS & ABS. But the profile of the MBS investment community will likely continue to change as the Federal Reserve has opted to resume buying agency MBS in an effort to stimulate the economy by pushing long-term interest rates lower. While the result of resumed Fed MBS purchases is uncertain, the Federal Open Market Committee’s decision to reinvest payments on the Fed’s agency MBS back into...(Includes one data chart)

A proposal from federal regulators to change servicer compensation on future Fannie Mae and Freddie Mac MBS to a fee-for-service model could also end up addressing a major investor beef about the non-agency MBS market: poor servicing of distressed loans and misaligned interests. The Federal Housing Finance Agency this week released a discussion paper outlining a radical change from an existing system that pays Fannie and Freddie servicers a minimum servicing fee regardless of the loan status. The proposed system features a low flat fee for handling performing loans with increased compensation for...

Wall Street MBS insiders met this week to talk about making Fannie Mae and Freddie Mac MBS backed by high loan-to-value refinance mortgages eligible for the to-be-announced market. The Securities Industry and Financial Markets Association held a telephone conference call to discuss the issue, a SIFMA representative confirmed, but the group declined to provide any details. Mortgages with LTV ratios above 105 percent can be sold to Fannie Mae and Freddie Mac under the Home Affordable Refinance Program, but these loans must be pooled in separate MBS that are not eligible for the TBA market. HARP loans with...(Includes one data chart)

The Treasury Market Practices Group late last week clarified its recommended fails charge trading practice for agency MBS to limit the scope to pass-throughs, where fails are most likely to happen. “The agency debt and agency MBS trading practice has been updated to reflect the TMPG’s recommendation that a fails charge apply to agency pass-through MBS issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae,” the group said. The original recommendation was that the charge apply to agency MBS issued or backed by Fannie, Freddie and Ginnie Mae, which also issue most REMICs backed by agency pass-throughs. The TMPG has not...

Now may be a good time for ABS investors to broaden their horizons and look into exotic asset classes, such as solar panel financing. “Over the past few decades, most of the sheer volume of securitizations has come from the cash flows of consumer asset receivables, such as mortgages, credit cards and auto loans,” said Chris DiAngelo, a partner with Katten Muchin Rosenman LLP in New York City, who moderated an industry discussion on nontraditional securitizations sponsored by the American Securitization Forum this week. “Although the auto market has returned to relatively normal issuance volumes, mortgage and...

The ongoing debate over the need for a government guarantee to sustain the benefits of the to-be-announced MBS market moved this week to the Senate Housing, Banking and Urban Development Committee, where researchers covered both sides of the issue for a group of lawmakers who aren’t likely to act on their counsel any time soon. “Proponents of privatization ignore that the jumbo market does benefit from a government guarantee indirectly in multiple ways,” said Adam Levitin, professor of law at Georgetown University. “The jumbo market has long aped the standards set by the [government-sponsored enterprises] in the conforming market, including...

Fannie Mae and Freddie Mac mortgage-backed securities continued to be the preferred investment option for the Federal Home Loan Banks during the second quarter of 2011 with only a paltry decrease from the previous quarter, according to a new analysis and ranking by Inside The GSEs based on data provided by the Federal Housing Finance Agency.Ginnie Mae securities, meanwhile, continued to grow in popularity within the FHLBank system during the quarter.