Former rating analysts at two of the major rating services told the Securities and Exchange Commission that problems with the rating system are due to management at the rating services, not the analysts in charge of assigning ratings. “The management sets the policies, goals and corporate culture,” said David Jacob, the executive managing director of global structured finance at Standard & Poor’s from 2008 through 2011. “Management serves its firm’s shareholders, who look to maximize profit. There is nothing wrong with this. However, invariably there is potential for a conflict of interest.” In a comment letter submitted to the SEC last week, Jacob said...

Redwood Trust’s latest non-agency jumbo mortgage-backed security, its eighth of the year, consisted of originations from 67 lenders. No lender accounts for more than 6.4 percent of the originations in the $460.16 million deal. The non-agency jumbo MBS issued this week received AAA ratings with credit enhancement of 7.10 percent on the top-rated tranche. The top contributors to the deal were George Mason Mortgage, Cole Taylor Mortgage, W.J. Bradley Mortgage Capital and PrimeLending, each accounting for ...

Lenders’ contributions to non-agency mortgage-backed securities could continue to be subjected to high levels of scrutiny as the rating services emphasize upfront due diligence. Standard & Poor’s recently cautioned investors in non-agency jumbo mortgage-backed securities from putting too much faith into the representations and warranties provided on new securities. “The fact remains that we believe loan and borrower quality are the most important factors for evaluating residential MBS ...

Sallie Mae’s recently announced plan to split into two publicly traded companies isn’t leaving analysts at ratings services or Wall Street firms with much to cheer about on multiple fronts. In late May, the Sallie Mae board of directors authorized newly appointed CEO John Remondi to press ahead with plans to split the company’s existing businesses into two publicly traded entities – a new education loan management firm, known as NewCo, and a consumer banking company, to be known as Sallie Mae Bank. The board’s stated intention with the move, talked about since at least as early as 2010, is...

JPMorgan Chase is set to issue a unique jumbo MBS, its second of the year, that will include originations from 20 different lenders that far outweigh the company’s contributions to the deal. Another bank, EverBank, this week took steps to issue its second jumbo deal of 2013 as well. Since 2008, big banks have largely held their non-agency jumbo originations in portfolio, seeing better execution than non-agency MBS issuance. However, strong demand from non-agency MBS investors and a desire to shrink mortgage exposure has prompted Chase to resume issuing jumbo MBS. Chase declined...

Security issuers, investors and the rating services largely praised unsolicited rating requirements established by the Securities and Exchange Commission in 2010, but they had different views on how the rules should be changed. “Rating agency information arbitrage has been eliminated,” Kevin Duignan, global head of structured finance at Fitch Ratings, said of the SEC’s Rule 17g-5, which established unsolicited rating standards. “We’re all getting the same information and we know we’re getting the same information.” Rule 17g-5 requires...

The lack of a specific computer code for reporting short-sale mortgage transactions is creating numerous false reports of foreclosure on consumer credit reports, inhibiting their re-entry into the housing market, according to lawmakers on Capitol Hill and consumer advocates. Earlier this month, Sen. Bill Nelson, D-FL, dispatched letters to the Federal Trade Commission and the Consumer Financial Protection Bureau citing the “disturbing” consumer credit reporting practice of lumping short sale within the same industry code as a foreclosure in consumers’ credit reports. “If a short sale is reported...

Rating services are putting considerable energy into assessing the companies that are originating loans for the new breed of jumbo non-agency MBS, in addition to thorough due diligence reviews of the collateral itself, industry experts say. The rating services don’t even begin the rating process until the major loan originators in a transaction clear the “gating” process, said Kathryn Kelbaugh, a senior analyst at Moody’s Investors Service, during a panel session at last week’s secondary market conference sponsored by the Mortgage Bankers Association. “We want to know what originators are doing, have third-party reviews and look at reps and warranties. You have to pass those gates before we can do a rating.” Margaret Sweeney, a director at Fitch Ratings, said...

Shellpoint Acceptance Corp. hopes to come to market with its first non-agency MBS by summer, securitizing not only jumbo loans, but a host of mortgages that fall outside Fannie Mae and Freddie Mac underwriting guidelines for different reasons. According to a recent filing with the Securities and Exchange Commission, the company has committed $2 billion in capital to its shelf registration, though its first deal will be smaller than that. Shellpoint refers...

Although Redwood Trust’s soup-to-nuts approach to representations and warranties has dominated the fledgling recovery in jumbo mortgage-backed securities issuance, some experts think a shorter term alternative may gain popularity among issuers. It’s important for investors and rating services to anticipate putbacks in jumbo MBS, Peter Sack, a managing director at Credit Suisse, said during a panel session at the recent secondary market conference sponsored by the Mortgage Bankers Association ...