Wells Fargo, Deutsche Bank and the Royal Bank of Scotland have agreed to pay investors $165 million to resolve allegations of misrepresenting the quality of mortgage loans underlying securities issued by now-defunct subprime lender NovaStar Mortgage. The agreement was announced last week subject to approval by Judge Deborah Batts of the U.S. District Court for the Second District of New York, according to a report by Reuters. At issue is $7.7 billion in residential MBS delivered into various trusts and sold to investors, including pension funds, prior to the housing crash. A multi-employer union pension plan led by the New Jersey Carpenters Health Fund filed...

Thanks to strong growth in the agency market, the supply of single-family MBS outstanding continued to grow over the final three months of 2016, a new Inside MBS & ABS analysis reveals. Agency MBS outstanding pushed to a new record, $6.034 trillion, as of the end of last year. The biggest gainer continued to be Ginnie Mae, which reported a 2.2 percent increase in the fourth quarter and a 7.7 percent gain for the year. Freddie Mac matched Ginnie’s fourth-quarter increase, but its year-to-date gain was smaller, 4.2 percent. Fannie Mae had...[Includes two data tables]

For the third time in as many years, the U.S. Federal Reserve decided to raise the federal funds rate by 25 basis points this week, as widely expected – only this time, the Fed didn’t wait until the very end of the year. The FOMC’s revised projections are for two additional quarter-point rate hikes later this year, three next year and three or four the year after. World stock indexes rallied...

Industry practices that are developing around risk-retention requirements for MBS and ABS might be rejected by federal regulators, according to a former special counsel at the Securities and Exchange Commission. The Dodd-Frank Act established risk-retention requirements for various types of MBS and ABS. The rule generally requires sponsors of a security to retain at least 5.0 percent of the issuance, in an effort to align the interests of issuers with the interests of investors. Among the options to comply with risk-retention requirements, sponsors can retain...

Nationstar in the CFPB’s Crosshairs Over HMDA Reporting. Nationstar, the residential mortgage servicer, revealed recently it is being investigated by the CFPB over issues related to complying with the Home Mortgage Disclosure Act.... Non-Agency MBS Issuers Like the Legal Protection of the ATR. Congressional Republicans may be working on legislation to repeal and replace many regulations required by the Dodd-Frank Act, but some issuers of mortgage-backed securities are actually pushing to maintain some of the regulations.... Trump Executive Order on Regulatory Red Tape Unlikely to Apply to CFPB. Will the Bureau Comply Anyway? The executive order that President Trump signed in the middle of February that requires every federal agency to establish a regulatory reform task force to eliminate red tape probably does not apply to the CFPB, according to industry experts....

The deal-agent role that some investors are pushing for in new non-agency MBS will complete or oversee many of the tasks that are already present in transactions with one important caveat: the deal agent has a responsibility to protect investors. A deal agent will oversee various participants in an MBS, oversee enforcement of representations and warranties, and have a fiduciary duty to investors. Yehudah Forster, a vice president and senior credit officer at Moody’s Investors Service, said...

A transparency feature included in the Dodd-Frank Act aimed at helping MBS and ABS investors understand the representations and warranties on a transaction has created a significant amount of work for rating services with little benefit for investors, according to officials at ratings firms. Since June 2015, rating services have been required by the DFA to compare the reps and warrants on a transaction they’re rating with a benchmark set of reps and warrants for that asset class. These 17g-7 reports often span hundreds of pages, detailing similarities and differences between the reps and warrants on a specific transaction compared with a set of benchmarks established by the rating services. Claire Mezzanotte, a group managing director and head of global structured finance at DBRS, said...

MBS are likely to be hurt when the Federal Reserve stops its reinvestments to shrink its balance sheet over the next few years, according to an analysis by Desjardins, Canada’s largest cooperative financial group. Even though the agency plans to withdraw gradually, its $1.75 trillion in MBS holdings account for approximately 20 percent of all U.S. MBS outstanding, noted Mathieu D’Anjou, senior economist with the Desjardins Group. “An increase in rate spreads between MBS and U.S. bonds, [which is] currently low, could be required...

Online consumer lender Prosper Marketplace, based in San Francisco, recently finalized a deal with a consortium of institutional investors to purchase as much as $5 billion of the lending platform’s unsecured consumer loans during the next two years. The consortium comprises investment bank Jefferies Group LLC and three asset managers: affiliates of New Residential Investment Corp., Third Point LLC, and an unnamed entity of which Soros Fund Management LLC serves as principal investment manager. Under the terms of the deal, the consortium will earn...

Ginnie Mae production fell substantially in February from January as the government-insured lending market continued to lose steam in the first quarter of 2017. Ginnie mortgage-backed securities issuance fell 24.0 percent from January as fewer purchase and refinance loans were pooled for securitization, bringing February’s total issuance to just $32.2 billion. Year-over-year Ginnie MBS issuance, on the other hand, increased by 6.2 percent. The government-insured market set an all-time record of $545.0 billion in originations during 2016, a whopping 31.0 percent jump from the previous year. That total eclipsed previous records for originations of FHA, VA and rural housing loans guaranteed by the U.S. Department of Agriculture, according to data compiled by affiliate Inside Mortgage Finance. In addition, government-insured lending accounted for a record ... [ 3 charts ]