Securitization participants and financial services providers flatly rejected a proposal to create an independent federal board that would assign credit rating agencies to initially rate non-agency MBS, ABS and other structured finance transactions. In separate comments, two industry trade groups and Fitch Rating Services opposed the proposal, which is being studied by the Securities and Exchange Commission. The Dodd-Frank Act instructs the SEC to study the concept and report back to Congress by July 2012 with its recommendations for regulatory or statutory changes. The idea of establishing a board to oversee credit rating agencies and address...

Standard & Poor’s and Fitch Ratings have announced separate ratings of two new non-agency MBS over the past two weeks, making a little noise in the long slumbering non-agency MBS market. Fitch this week released a presale report on Redwood Trust’s next prime jumbo transaction, while S&P rated a securitization of seasoned subprime mortgages that drew flak because it got higher grades than the agency gave the U.S. government. The new Redwood transaction, Sequoia Mortgage Trust 2011-2, looks a lot like the company’s last issuance back in February. It’s backed by $375 million of squeaky-clean prime jumbo mortgages, most of which were originated by...

The ongoing debate over the need for a government guarantee to sustain the benefits of the to-be-announced MBS market moved this week to the Senate Housing, Banking and Urban Development Committee, where researchers covered both sides of the issue for a group of lawmakers who aren’t likely to act on their counsel any time soon. “Proponents of privatization ignore that the jumbo market does benefit from a government guarantee indirectly in multiple ways,” said Adam Levitin, professor of law at Georgetown University. “The jumbo market has long aped the standards set by the [government-sponsored enterprises] in the conforming market, including...

The Senate Banking, Housing and Urban Affairs Committee may not be moving any closer to a decision on reforming the mortgage finance system, but lawmakers should be getting well versed in the various analytic perspectives on the role of the federal government. At a hearing this week, the committee heard testimony from researchers who support winding down Fannie Mae and Freddie Mac as soon as possible and others who say private capital won’t be drawn back into the system unless there is a government guarantee. “There’s absolutely no reason to believe that private capital would immediately step-up – even if it would eventually...

A Senate lawmaker and the Mortgage Bankers Association warned House lawmakers that a narrow “qualified residential mortgage” rule will result in overuse of the FHA program and make it more difficult for private capital to re-enter the housing finance market. Testifying before the House Financial Services Subcommittee on Insurance, Housing and Economic Opportunity last week, Sen. Johnny Isakson, R-GA, said the six federal agencies charged with crafting risk-retention requirements apparently failed to consider the impact of a narrow QRM rule on the FHA program. Isakson, who co-authored a Senate exception to...

Originations of non-agency jumbo mortgages declined in the second quarter of 2011, along with the rest of the mortgage market, but a new ranking and analysis by Inside Nonconforming Markets shows the jumbo sector still running higher than the pace in the first half of last year. Moreover, a number of lenders have boosted their jumbo originations or are looking to expand into the market as conforming loan limits are set to decrease. ... [includes one data chart]

The American Securitization Forum positioned its new model repurchase principles as a better option to restore investor confidence in non-agency mortgage-backed securities than the risk retention required by the Dodd-Frank Act. “The risk-retention rules proposed by regulators are not sufficiently tailored to different asset classes and will likely cause a host of negative unintended consequences,” said Tom Deutsch, executive director of the ASF. ...

Real estate investment trusts that invest in mortgage-backed securities are on the defensive after the Securities and Exchange Commission said last week that it is considering revising rules for mortgage REITs. “Mortgage REITs provide private capital to these markets, while allowing individual investors to opt in or out of the associated risks,” Thomas Siering, president and CEO of Two Harbors Investment, said this week in a letter to the REIT’s shareholders. ...

The Federal Housing Finance Agency this week defended its massive legal action against many of the nation’s largest financial institutions on behalf of Fannie Mae and Freddie Mac over the government-sponsored enterprises’ losses on non-agency mortgage backed security purchases. The Finance Agency contends that 17 financial institutions sold Fannie and Freddie some $196 billion of MBS, mostly between 2005 and 2008, that caused losses to the GSEs for which there should be compensation. Filed late last week in federal and state courts in New York and in federal court in Connecticut, the lawsuits seek damages and civil penalties under... [Includes one data chart]

Fannie Mae made its second foray of 2011 into the non-agency MBS market by providing a guarantee wrap on a $690.6 billion deal backed by previously modified FHA and VA mortgages. Government Loan Securitization Trust 2011-FV1 is comprised of government loans originated by Wells Fargo and Wachovia. All the loans were previously securitized in non-agency MBS backed by Fannie wraps, including some that date back to 2001. The average age of the loans since modification is 132 months, and 91.2 percent of them are insured by the FHA. According to the prospectus, 19.8 percent of the loans were 30-days delinquent and 35.9 percent were more than...