Ability-to-repay requirements set by the Consumer Financial Protection Bureau could increase losses, liquidation timelines and loan modifications for non-agency MBS, according to Standard & Poor’s. The new requirements take effect Jan. 10 and include assignee liability for certain loans. Liability from the ATR requirements and qualified-mortgage standards are only a concern for non-agency MBS issuers and investors if a borrower defaults. Given the exceptionally strong performance of jumbo MBS issued since 2010, S&P said the threat of higher losses will generally be mild for jumbo MBS. However, performance could eventually decline...

The jumbo mortgage-backed security market may be thawing slowly. Credit Suisse this week issued its first security since the end of August, and Redwood Trust issued its latest jumbo MBS this month after a similar pause in securitization activity. The $301.90 million deal by Credit Suisse received an AAA rating from DBRS and Standard & Poor’s with credit enhancement of 7.55 percent on the top-rated tranche. Mortgages in CSMC 2013-IVR5 seasoned for an average of four months and had an average interest rate ...

JPMorgan Chase announced two separate settlements recently totaling $17.5 billion regarding non-agency mortgage-backed securities issued before the financial crisis. A $13.0 billion settlement was reached with federal and state entities, while a tentative $4.5 billion settlement was reached with non-agency MBS investors. The Department of Justice said the $13.0 billion settlement involving the Residential MBS Working Group established by President Obama was the largest settlement with a single entity ...

Due diligence can be a more significant factor in the rating of a jumbo mortgage-backed security than the representations and warranties on the deal, according to Kroll Bond Rating Agency. However, major investors in non-agency MBS have expressed concerns about due diligence on new deals along with the adequacy of disclosures. At a structured-finance investor conference hosted by KBRA this month, the rating service noted that it doesn’t adjust expected losses or credit enhancement for variations in ...

Jumbo conduits have made strong progress in controlling for risks from non-retail mortgages, according to Moody’s Investors Service. The rating services tend to view retail originations as the safest channel due to lower risk of fraud. While loans from brokers have traditionally performed worse than loans from other channels, jumbo conduits have implemented a number of measures to reduce fraud risk. “New Penn Financial, for example, contacts borrowers directly with well-scripted calls designed to ...

Commercial banks continued to see their investment in residential MBS slowly evaporate during the third quarter of 2013 even though the overall market appears to finally be growing again. A new Inside MBS & ABS analysis of recently-released call report data shows that commercial banks and thrifts held a combined $1.513 trillion of residential MBS as of the end of September. That was down 1.0 percent from the end of June and represented the lowest level since the middle of 2011. Depositories and other private MBS investors have...[Includes two data charts]

Nancy Handal, managing director of insurance conglomerate MetLife, oversees a $70 billion fixed-income portfolio and a $6 billion “high-yield” residential MBS opportunity fund – but has bought into just one jumbo MBS deal over the past few years. And she’s not shy about the reasons why: it’s all about disclosures. Handal is not happy about what non-agency issuers disclose and in particular she’s dismayed that MBS investors are essentially frozen out of the due-diligence process. Speaking at a housing forum sponsored by the Urban Institute and CoreLogic this week, the MetLife executive expressed...

Although non-agency MBS issuance has been a dicey proposition since rates spiked in late spring, residential lenders continue to eye the sector, liking the long-term outlook for jumbo securities. Two nonbanks taking a close look at the jumbo MBS market include Freedom Mortgage and W.J. Bradley Mortgage Capital, both established names in the agency MBS arena. In an interview with Inside MBS & ABS, Freedom Mortgage CEO and founder Stanley Middleman said...

Fitch Ratings released its “initial perspective” this week on how the Consumer Financial Protection Bureau’s ability-to-repay rule and requirements for qualified mortgages will impact ratings for new non-agency MBS. That makes Fitch the first rating service to provide formal insight on how the CFPB rule, which takes effect Jan. 10, will impact jumbo mortgage securitization. Fitch is considering requiring issuers to state the QM status of any mortgage to be included in an MBS, putting a greater emphasis on lender compliance and due diligence, and a focus on representations and warranties for compliance with the ATR rule and QM standards. “The rating approach will likely focus...

Foreclosure timelines and servicers’ emphasis on loss mitigation has dampened improvements to loss severities on non-agency MBS, according to Fitch Ratings. The rating service said this week that while national average home prices have increased by 14 percent in the past year, loss severities on liquidated properties in non-agency MBS have improved by only 5 percent. In the third quarter of 2013, it took an average of 32 months to liquidate a mortgage included in a non-agency MBS, according to Fitch, more than twice as long as average liquidation timelines in 2008. “Longer timelines translate...