Standard & Poor’s, Moody’s Investors Service and Fitch Ratings accounted for a combined 96 percent of all credit ratings across all five rating categories, according to the Securities and Exchange Commission’s annual report on nationally recognized statistical rating organizations (NRSROs). There were NRSROs registered with the SEC during the year ending in the second quarter of 2012. They were A.M. Best Co.; DBRS, Inc.; Egan-Jones Ratings Co. (EJR); Fitch; Japan Credit Rating Agency; Kroll Bond Rating Agency (KBRA); Moody’s; Morningstar Credit Ratings; and S&P. They provided ratings in five credit rating categories: asset-backed securities (including mortgages); corporate issuers; financial institutions; government securities; and insurance companies. The report showed...

The dismissal of a lawsuit from non-agency MBS investors against the rating services was confirmed last week, including a ruling that ratings from Fitch Ratings, Moody’s Investors Service and Standard & Poor’s were not negligent misrepresentations. The U.S. Court of Appeals for the Sixth Circuit confirmed the September 2011 dismissal of a lawsuit brought by investors led by the Ohio Police & Fire Pension Fund. The lawsuit related to 308 AAA-rated non-agency MBS issued between 2005 and 2008, with the investors taking losses of $457 million from the securities. The investors claimed...

A new non-agency jumbo MBS from a subsidiary of Credit Suisse Group includes some key differences compared with Redwood Trust deals, while pumping life into the non-agency market. DLJ Mortgage Capital issued a $329.89 million non-agency jumbo MBS late last week via a private placement; it was the company’s third of 2012. CSMC Trust 2012-CIM3 received a AAA rating from Standard & Poor’s with credit enhancement of 5.85 percent on the top-rated tranche. The new Credit Suisse deal included...

Institutional investors are creating a rental market out of real estate owned properties without a mortgage-backed security structure in place, though industry participants anticipate that a REO rental securitization market will eventually develop. Some $8.0 billion has been raised by institutional investors to purchase REOs and rent them, according to Oliver Chang, founder and managing director of Sylvan Road Capital, which itself expects to invest $1.0 billion in the market in the next two years ...

Department of Housing and Urban Development Secretary Shaun Donovan said this week HUD is considering additional steps to improve the financial health of the FHA single-family program, including raising FICO score requirements and supporting legislation that would take the FHA loan limits back to pre-crisis levels. The HUD secretary found himself in the hot seat before the Senate Committee on Banking, Housing and Urban Development, explaining the results of a recent actuarial audit that placed the FHA’s Mutual Mortgage Insurance Fund capital reserve ratio below zero at negative 1.44 percent, representing a negative economic value of $16.3 billion. Sen. Richard Shelby, R-AL, ranking minority member of the committee, raised...

Fannie Mae and Freddie Mac have reduced their dependency on U.S. government support, but there may be restructuring issues within the budget talks to resolve the looming “fiscal cliff,” according to Fitch Ratings. Fitch this week affirmed its “AAA” rating for both Fannie and Freddie even as its outlook for the two GSEs remains “negative.” However, the rating agency warned that its outlook for Fannie and Freddie depends upon the economy and the ability of political leaders to come to an accord on taxes and government spending before year’s end.

While the nine rating services registered as Nationally Recognized Statistical Rating Organizations were largely compliant with Securities and Exchange Commission regulations and recommendations, the agency found some significant issues with the ABS rating process. In a review covering the government’s 2012 fiscal year ending in September, the SEC said one of the top three firms appeared to change its method for calculating a key financial ratio in rating certain asset-backed securitizations, but failed for several months to publicly disclose the change and its effects on the ratings. The agency includes non-mortgage ABS, commercial MBS and non-agency MBS in a single category of asset-backed securitizations. “Further, it appears the NRSRO did not consistently apply...

The top three rating services continued to dominate the new issuance market in non-mortgage ABS during the first nine months of 2012, according to a new Inside MBS & ABS analysis, but the biggest player in the non-agency MBS market was DBRS. Moody’s Investors Service rated 69.7 percent of the non-mortgage ABS issued in 2012 as of the end of the third quarter, down slightly from its 70.4 percent share of the 2011 market. The company’s strengths were in vehicle finance and business loan ABS, where it captured more than three-quarters of new issuance by dollar volume. Standard & Poor’s ranked...[Includes two data charts]

The latest planned non-agency jumbo MBS from Redwood Trust will have lower credit enhancement levels than other recent deals issued by the real estate investment trust, according to presale reports released this week. The AAA tranche on Redwood’s sixth non-agency MBS issuance of the year will have credit enhancement of 7.05 percent, down from 7.30 percent on the three previous deals issued by Redwood. Officials at Redwood along with others interested in non-agency MBS have suggested that credit enhancement levels required by the rating services have been too high. The credit enhancement for Sequoia Mortgage Trust 2012-6 will be the lowest on a non-agency MBS backed by new loans since the MBS issued by Redwood in 2010 had 6.50 percent credit enhancement on the AAA tranche. Fitch Ratings, Kroll Bond Rating Agency and Moody’s Investors Service are set...

The Securities and Exchange Commission’s overdue “Franken amendment” study will be out soon and may include alternatives to the issuer-pay ratings model, the agency’s chief, Mary Schapiro, said last week at the annual meeting of the Securities Industry and Financial Markets Association. “The issuer-pay model has inherent conflicts in it,” Schapiro said, referring to the prevailing system in which securities issuers generally pay to obtain ratings from the credit rating services. The SEC head provided no additional specifics regarding the alternatives that might be featured in the agency’s pending report. The Franken amendment study is...