Moody’s Investors Service this week warned of increasing complexity in the structures of new jumbo MBS. However, losses on the deals will only occur in “low probability scenarios” and issuers have yet to bring back all of the non-agency MBS features seen before the financial crisis. Moody’s said complex cash-flow structures in new jumbo MBS can increase risks on senior bonds in the event of high mortgage losses. The features include super-senior support bonds, exchangeable securities, principal-only bonds, and pool interest-only bonds. “These securities pose...

Home Loan Servicing Solutions is preparing to issue a $350 million servicer advance receivable ABS, according to a presale report issued late last week by Standard & Poor’s. With the deal, $5.3 billion in mortgage servicer advance ABS will have been issued this year, according to the rating service. S&P has been the dominant rating agency in servicer advance ABS. Erkan Erturk, senior director of global structured finance research at the rating service, said issuance of servicer advance ABS is on track to reach the $7.0 billion in issuance S&P predicted at the beginning of the year. HLSS Servicer Advance Receivables Trust Series 2013-T6 received...

Standard & Poor’s this week threw another counterpunch against the federal government’s civil fraud lawsuit filed earlier this year, slamming the litigation as “retaliation” for the rating agency’s August 2011 downgrade of the country’s AAA credit rating. The Justice Department in February filed a $5.0 billion lawsuit accusing S&P of knowingly inflating its ratings in residential MBS and collateralized debt obligations to boost its revenue and market share in the years leading up to the 2008 financial crisis. The filing in the U.S. District Court in Santa Ana, CA, by S&P’s parent company McGraw-Hill Co. seeks...

Fitch Ratings updated its loss model criteria for non-agency jumbo mortgage-backed securities this month, including new default estimates that vary by origination channel. Other rating services take the origination channel into account when rating new jumbo MBS, but not necessarily to the extent that Fitch has taken. “Fitch has determined that loans originated through a direct retail channel have a lower default risk than those originated through a broker, correspondent or wholesale channel,” the rating ...

Standard & Poor’s is defending its status as the top rating service in the non-agency MBS market through the first half of 2013, having put its stamp on 39.0 percent of the growing market, according to a new Inside MBS & ABS ranking. S&P has been the top non-agency MBS rating agency over the years but saw DBRS capture the title in 2012 with 54.8 percent of rated transactions. The non-agency ratings business has become significantly more fragmented than it was before the financial collapse, when S&P often rated more than 90.0 percent of the deals that came to market. Both Fitch and Kroll Ratings are...[Includes two data charts]

Fitch Ratings recently updated its criteria for estimating losses on residential MBS transactions, introducing three new variables that influence default expectations, including the origination channel. Fitch said it has determined that loans originated through a direct retail channel have a lower default risk than those originated through brokers or correspondents. To account for this risk, the rating agency is now assigning a higher default probability to loans originated through non-retail channels. This newly added variable is applied...

It has been a bad month for nationally recognized statistical rating organizations (NRSROs) as plaintiffs pummeled Standard & Poor’s, Moody’s Corp. and Fitch Ratings with lawsuits in state courts, seeking damages for allegedly fraudulent investment ratings of pre-crisis non-agency MBS. On July 9, liquidators of two Bear Stearns funds sued the three rating agencies and their parent companies in New York state court for more than $1.12 billion in damages, as well as punitive damages, over allegedly inflated ratings of purportedly “high grade” securities. Geoffrey Varga and Mark Longbottom, the joint official liquidators of Bear Stearns, brought...[Includes one data chart]

A subsidiary of Nomura Holdings is working on issuing a non-agency jumbo mortgage-backed security comprised solely of originations by First Republic Bank. The pending deal is set to receive a AAA rating from Kroll Bond Rating Agency, while Fitch Ratings warned that the proposed credit enhancement levels on the deal are too low for a AAA rating. The $440.08 million NRP Mortgage Trust 2013-1 is structured to include credit enhancement of 7.60 percent on the tranche with a AAA rating from KBRA. Fitch said ...

Could rising interest rates and a shake-up in the repo market cause some real estate investment trusts that specialize in the MBS market to dump securities en masse? A new report from Fitch Ratings notes that repurchase agreements represent 90 percent of agency mortgage REIT liabilities. “In a deleveraging scenario, MBS investors reliant on repo borrowing may need to liquidate some of their holdings,” writes Fitch analyst Robert Grossman and his team. If that happens it might create what Fitch calls a “knock-on” effect for MBS valuations and the mortgage market in general. The cash provided via repo lines is...

Looser underwriting standards and concerns about the financial strength and limited operational history of Shellpoint Partners pushed the credit enhancement on the issuer’s pending non-agency MBS to levels not previously seen in the new wave of non-agency MBS issuance. Shellpoint is preparing a $261.58 million non-agency jumbo MBS, according to presale reports released this week. The deal is set to receive a AAA rating with credit enhancement of 10.10 percent on the top-rated tranche. AAA credit enhancement levels on recent deals from Redwood Trust and JPMorgan Chase have ranged...