Wells Fargo is defending last week’s decision to hold back more than $90 million from investors attempting to recoup losses from legacy single-family MBS. The bank said it withheld distribution of reserve amounts to the plaintiffs in the 2014 trustee lawsuit “when certain RMBS transactions were liquidated at another party’s direction.” A Bloomberg report said New Residential Investment Corp. exercised its cleanup buyback option to reduce its own administrative expenses. “Cleanup buyback” refers to early redemption of the remaining issue amount by the seller when the principal has been paid down to an insignificant amount. In a statement, Wells Fargo explained...

Communication among investors in non-agency MBS looks to be increasingly important. Fitch Ratings has included an assessment of a deal’s bondholder communication platform in revised criteria for residential MBS while the Structured Finance Industry Group continues to work on recommendations for bondholder communication. “Fitch views the inclusion of a bondholder communication platform as a best practice for rep-and-warrant frameworks, particularly in transactions that rely on bondholder votes to influence rep-and-warrant review decisions,” the rating service said. Fitch said...

The Structured Finance Industry Group called for an appeals court to enforce industry-established payment priority provisions in a significant case involving Lehman Brothers’ collateralized-debt obligations and a bankruptcy filing. Lehman Brothers Special Financing Inc. v. Bank of America N.A. centers on a “flip clause” included in 44 CDOs issued by the failed investment bank. SFIG noted that a flip clause redirects or reprioritizes cash flow upon bankruptcy, and is often incorporated in securitizations that include swaps. “As is common in the market, in structuring these transactions, the parties bargained...

The Federal Reserve took some pointed criticism on Capitol Hill this week over its handling of monetary policy since the end of the Great Recession, including its support of the housing and mortgage markets through its unprecedented quantitative easing programs. “I don’t think the added gross domestic product growth we’ve had over the last 90 months will be proven to have been worth ballooning the balance sheet from $900 billion to $4.5 trillion,” Rep. French Hill, R-AR, said during a hearing this week by the House Financial Services Subcommittee on Monetary Policy and Trade. He also said...

Wells Fargo fell a notch as PennyMac raced to the top to become the leading VA jumbo securitizer for the first quarter of 2017 – a period in which VA jumbo loan securitization took a sharp nose dive. The volume of VA jumbo loans securitized during the first three months plunged 36.8 percent, compared to the meager 2.0 percent decline seen in the fourth quarter. The drop reflected a 32.9 percent drop in jumbo mortgage production during the first quarter, along with similar large drops in virtually every product segment in the mortgage market, according to an analysis by Inside FHA/VA Lending affiliate Inside Mortgage Finance. The agency jumbo market was down 39.1 percent from the fourth quarter despite the bump up in high-cost loan limits to $636,150, an increase of $10,650 that became effective in January. All components of the agency jumbo market took big hits in the first quarter, including ... [ Charts ]

The development of a deal agent for new non-agency MBS has spanned years, with industry participants working toward the best way to compensate the new transaction party, among other issues. A deal agent would have a fiduciary duty to investors, oversee enforcement of representations and warranties, and monitor various participants in a security. The new role is significant because some major investors say that after suffering major losses on MBS issued before the financial crisis, a deal agent is required for them to buy new securities. Clayton Holdings was...

Investors in nonprime MBS may be more vulnerable to fraudulent or defective mortgages compared to prime transactions because of deficiencies or inadequacies in the related representation-and-warranties frameworks, according to a new report from analysts at Moody’s Investors Service. “The collateral backing these transactions is riskier than the loans in post-crisis prime jumbo RMBS, which also generally use stronger frameworks,” the report said. For starters, “Transactions in the re-emerging non-prime RMBS sector are...

One of the most significant variables industry participants are working to address in terms of introducing a deal agent into non-agency mortgage-backed securities is the fee structure. Issuers are trying to balance paying for the services provided by a deal agent without diverting too much cash flow from investors in non-agency MBS. The fee structure will also play a key role in how rating services treat MBS that have a deal agent, with issuers looking for favorable treatment ...

Ginnie Mae hit a milestone in the MBS market during the first quarter of 2017, edging past Freddie Mac to become the second-largest supplier of single-family MBS in the world. A new Inside MBS & ABS analysis reveals $1.705 trillion of Ginnie 1-4 family MBS outstanding at the end of March, a 2.2 percent increase in just three months. Meanwhile, outstanding single-family Freddie MBS rose 0.7 percent to $1.703 trillion. Both Ginnie and Freddie accounted...[Includes two data tables]

This week, the Federal Reserve’s Open Market Committee provided a bit more information on the process it plans to follow in shrinking the size of its massive balance sheet, once it decides the time is right to finally begin. “Provided that the economy evolves broadly as the committee anticipates, we currently expect to begin implementing a balance sheet normalization program this year,” Fed Chair Janet Yellen said in her post-meeting press conference. The hope is to initiate an incremental and largely predictable decline in the U.S. central bank’s securities holdings. The FOMC intends...