Fannie Mae and Freddie Mac lost a combined $9.2 billion during the third quarter – mostly due to writedowns on derivatives transactions – while the two government-sponsored enterprises continued to watch their massive MBS holdings decline. As of the end of September, Fannie and Freddie held a combined $754.54 billion of MBS in their retained portfolios, down 1.1 percent from the second quarter and a decline of 7.4 percent from the same July through September period last year. Fannie’s holdings of non-agency MBS fell 2.2 percent to $77.1 billion during... (Includes one data chart)

Recent non-agency mortgage loan modifications are showing better results compared to earlier private-label modifications despite a continued slowdown in new modification activity, according to a new Fitch Ratings analysis. While the number of completed modifications dropped, transactions completed in the past 18-24 months have improved slightly over earlier programs as a result of standardized guidelines, the recent Fitch report said. Patterned on the Home Affordable Modification Program, the standardized guidelines helped to focus attention on creating more sustainable modifications. These features included...

Non-agency investors will not support new mortgage-backed securities until lenders and issuers establish stringent standards for originations and securitization, according to industry participants. “You’re going to need something to convince people – at least in the top tier – that their credit risk is pretty low,” David Lukach, a partner and head of the U.S. structured finance group at PricewaterhouseCoopers, said at a discussion hosted by the Securities Industry and Financial Markets Association last week. ...

Fannie Mae, Freddie Mac and their federal conservator are trying to devise a new servicing compensation scheme without upsetting the to-be-announced agency MBS market that Wall Street dealers and Main Street mortgage lenders depend on. In a recent white paper outlining two alternatives for reforming servicing compensation so that more resources are available for distressed loans, the Federal Housing Finance Agency said “promoting continued liquidity” in the TBA market is one of its primary objectives. The agency also mused that a new servicer compensation system for the government-sponsored enterprises could...

Prospects for a return of elevated conforming loan limits remain unclear after the Senate approved a reinstatement provision in an appropriations bill in October. Most conservatives in the House remain strongly opposed to the reinstatement – which would likely delay the return of the non-agency market. More than 30 percent of members of the House support a temporary reinstatement of elevated conforming loan limits, according to a letter sent to House leaders this week. ...

The stellar returns on non-agency mortgage-backed securities purchased via the Public-Private Investment Program have faltered this year, prompting some to call for a revamp of the program. Invesco – the fund that has seen the most success with the PPIP – also recently announced that it quit the program after having difficulties finding appropriate investments. ... [includes one data chart]

A new regulatory regime for non-agency securitization proposed last week by Rep. Scott Garrett, R-NJ, has attracted some support from non-agency mortgage-backed security issuers. However, the Private Mortgage Market Investment Act, which is aimed at reviving the non-agency market, also faces some bipartisan opposition. “This legislation, along with regulatory plans to ‘level the playing field,’ could spur a broad resurgence of the private MBS market in the short-term, for the benefit of homeowners, lenders, and investors,” said Martin Hughes, president and CEO of Redwood Trust, at a hearing this week by the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises. ...

The chairman of the House subcommittee that oversees the GSEs unveiled a bill late this week that seeks to drastically overhaul the secondary mortgage market – without the need for Fannie Mae or Freddie Mac.The Private Mortgage Market Act would create a heavily regulated mortgage-backed securities market consisting strictly of private entities functioning without a federal guarantee, according to Rep. Scott Garrett, R-NJ.Garrett, who chairs the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, said the goal of his legislation is to facilitate continued standardization and uniformity, ensure rule of law and provide MBS investors with the necessary transparency and standardization to ensure “that a deep and liquid market develops” without Fannie and Freddie.

Despite a rare new issue backed by current production jumbo loans, the non-agency MBS market hit a record low in the third quarter of 2011. Just $1.86 billion of new non-agency MBS came to market in the third quarter, a significantly lower number than the previous low reached at the height of the financial crisis in the third quarter of 2008, when $2.15 billion of securities were issued. There was a huge fall-off in resecuritization activity. Just $301 million of these deals were issued in the third quarter, less than a tenth the volume in the previous three-month period. In addition to the...(Includes three data charts)

The performance of large mortgage servicers of non-agency residential MBS, including their ability to prevent or cure loan delinquencies, varied widely during the 12 months ending in June 2011, due in no small part to foreclosure moratoria imposed on some, but not all, servicers, according to Moody’s Investors Service. The company’s inaugural Servicer Dashboard report found that during the June 2010 to June 2011 period, JPMorgan Chase and Bank of America exhibited overall poor servicing performance in contrast to CitiMortgage, GMAC and Ocwen. A major impediment to Chase and BofA’s servicing performance, Moody’s noted, was the fact that...