JPMorgan Chase is preparing to issue the first non-agency MBS that will comply with a securitization safe harbor established by the Federal Deposit Insurance Corp. in 2010, according to presale reports published this week. The $1.89 billion Chase Mortgage Trust 2016-1 received preliminary AAA ratings from Fitch Ratings and Moody’s Investors Service. According to Fitch, Chase will sell only the subordinateclasses to investors, retaining the senior tranche, which accounts for 87.7 percent of the MBS. To meet the FDIC safe-harbor requirements, Chase will also retain...

Social Finance, the fledgling “marketplace” lender, is funding enough home mortgages on a monthly basis that it’s now scouting for opportunities in the secondary market, according to lending officials who have met with the firm’s management team. Among the options being considered is raising money to form a real estate investment trust, a vehicle that would provide a balance sheet where whole loans could reside. However, it’s unclear at this point if Social Finance, or “SoFi” as it is known, has any plans for securitizing residential product. Company officials including Michael Tannenbaum, who serves as vice president of mortgages for the startup, and William Jarve, in the firm’s capital markets group, declined...

In another legacy residential MBS legal action, the California Public Employees’ Retirement System this week reached a record $130 million settlement with Moody’s Investors Service over the ratings service’s allegedly erroneous ratings of AAA-rated structured investment vehicles in the run-up to the financial crisis. Back in 2009, CalPERS sued Moody’s – along with Standard & Poor’s and Fitch Ratings – after the pension fund claimed massive losses from investments in three structured investment vehicles that depended on the liquidity of assets that proved to be illiquid, such as subprime MBS, collateralized debt obligations and other ABS. In the lawsuit, CalPERS accused Moody’s of making “negligent misrepresentations” by assigning its highest credit rating to the investments. This caused significant losses as the market ...

Falling oil prices may have little impact on residential MBS even if distressed prime jumbo borrowers in oil-producing states were to default on their loans, according to Standard & Poor’s. The rating agency’s optimistic conclusion may be good news to investors concerned that job cuts in the oil industry will lead to high default rates among prime jumbo borrowers, particularly in states where a high percentage of workers are in oil production. Market information suggests that values of prime jumbo MBS in oil-producing states are being affected, as the market factors in the risk of losses arising from borrower defaults in these regions, the S&P report said. However, it is unclear whether the additional spread on MBS with high concentrations ...

Ginnie Mae securitization of rural home loans declined in 2015 as securitization volume in the segment fell in the fourth quarter, according to an Inside FHA/VA Lending analysis of Ginnie Mae data. A total of $18.1 billion in USDA loans were securitized in 2015, with the top five issuers accounting for $10.2 billion delivered into Ginnie (based on numbers below) MBS pools. Some $4.5 billion of MBS backed by rural home loans with the U.S. Department of Agriculture guarantee were issued in the fourth quarter, down 12.5 percent from the previous quarter. USDA MBS issuance also dropped 9.0 percent in 2015 from 2014 volume levels, with all of the top five issuers losing ground year-over-year as well as in the fourth quarter. Chase Home Finance remained the top issuer of securitized rural home loans, accounting for $5.6 billion in Ginnie MBS issuances last year. Second-place Wells Fargo, ... [ 1 chart ]

The U.S. Department of Justice will reportedly decide within the next few months whether or not to bring the hammer down on Moody’s Corp. for allegedly overstating its ratings on MBS transactions in the run-up to the financial crisis, Bloomberg reported last week, citing “people familiar with the matter.” According to the news account, the Justice Department is scrutinizing credit ratings that Moody’s assigned during the housing boom and trying to determine if the firm massaged its criteria to earn business from Wall Street banks that were bundling residential mortgages into securities. A proposed settlement has apparently been...[Includes one data table]

Analysts at Morningstar Credit Ratings have begun to see non-agency single-property investor loans materialize with a new twist: less dependence on the borrower’s ability to repay and more reliance on the cash flow stream of rental income. “The majority of loans made to landlords backed by single properties are underwritten as consumer loans, not business-purpose loans. The lender will scrutinize the borrower’s credit, income and assets,” RMBS analysts Brian Grow, Becky Cao and Olgay Cangur said in a new report. Also, rental income is included as part of the borrower’s overall income when calculating the borrower’s personal debt/income ratio and, thus, the probability of default. “Recently, Morningstar has been presented...

Late last week, Moody’s Investors Service published an analysis detailing risks from mortgage warehouse securitizations. The warning was published days after a $225.0 million deal from Jefferies Funding was issued with a Aaa rating from Moody’s. Analysts at Moody’s stressed that securitized mortgage warehouse facilities face risks that differ from traditional residential MBS. The analysts said Station Place Securitization Trust 2016-1 from Jefferies addressed the risks, prompting the Aaa rating. Station Place was backed...

Morningstar Credit Ratings changed the way it rates residential MBS to allow credit for mortgage insurance. After getting a number of inquiries about the use of mortgage insurance in new MBS, the firm said it decided to enhance its methodology to provide a clearer framework for how the ratings agency approaches mortgage insurance. While mortgage insurance does not necessarily affect a borrower’s probability of default, it may decrease loss severities, according to Morningstar. “Our methodology now gives credit to mortgage insurance in some cases up to the AAA ratings level,” said Brian Grow, managing director of RMBS for Morningstar. “MI’s potential impact on default is...

The advent of mobile phone financing has given U.S. asset-backed securitization a new twist with its unique risks and strengths relative to other consumer ABS, according to a new report from Moody’s Investors Service. Mobile phone financing represents a shift from the previous business model of subsidizing phone purchases for customers with two-year service contracts. Many cell-phone makers and wireless carriers, such as Apple, Samsung Electronics, T-Mobile, AT&T, Sprint and Verizon, now use financing contracts in most of their phone sales. The most common form of financing is...