Risk-retention rules proposed by federal regulators could limit a popular form of non-prime risk retention, perhaps unintentionally. The treatment of excess spread on non-agency jumbo mortgage-backed securities is also a concern. Tom Deutsch, executive director of the American Securitization Forum, warned that excess spread retained by a deal’s sponsor would not count as risk retention under the qualified residential mortgage proposed rule. In securitizations of non-prime loans, the excess spread typically would be treated as the...

Statutes of limitation will soon force undecided non-agency mortgage-backed security investors into action, according to industry attorneys. Josh Silverman, counsel at Pomerantz Haudek Grossman & Gross, noted that many investors will lose buyback claims if they do not act shortly. In May, Option One Mortgage was the latest non-agency MBS issuer to be hit with repurchase requests. A group of investor clients organized by Talcott Franklin claimed that Option One improperly...

Officials with American Home Mortgage Servicing have proposed a plan that they claim will prompt principal-reduction loan modifications without strategic defaults by borrowers. The proposal involves short sales – not of homes owned by distressed borrowers – but of distressed mortgages held by non-agency mortgage-backed securities.Jordan Dorchuck, an executive vice president, chief legal officer and secretary at American Home, submitted the proposal to the Treasury Department in May. He estimated that...

The impending overhaul of the government-sponsored enterprises’ servicing guidelines will likely have a negative impact on the servicing of non-agency mortgages, according to industry analysts. The agency servicing overhaul includes financial incentives and penalties, which prompted a warning from Moody’s Investors Service. “Because of the incentives and penalties, servicers will likely shift their focus to loans backing the GSEs’ MBS and away from loans in private-label MBS,” Moody’s said. “This shift will mean that...

The Financial Industry Regulatory Authority reached settlements last week with two non-agency mortgage-backed security issuers regarding delinquency data and other reporting requirements. Three other non-prime servicers also recently settled with regulators regarding servicing practices. FINRA fined Credit Suisse Securities $4.5 million and Merrill Lynch $3.0 million for alleged violations of Regulation AB. The issuers neither admitted nor denied the charges. “Credit Suisse and Merrill Lynch failed to monitor and supervise the reporting of historical delinquency rates, depriving investors of...

Federal regulators should adopt a fair value method for measuring an MBS sponsor’s retained interest in non-agency transactions and make subtle changes in the proposed premium capture provisions in order to provide a framework that’s feasible for issuers, according to Redwood Trust officials. In a briefing with the Federal Housing Finance Agency, the company explained several key changes to the proposed inter-agency rule on risk retention as it would affect non-agency MBS. Redwood, the only company that has issued non-agency MBS backed by newly originated mortgages over the past few years, was joined by officials from Wells Fargo, which had been one of the most...

Two Harbors Investment Corp. announced last week that it has taken its first steps toward setting up a securitization issuance program, with a goal to issue a $250 million jumbo non-agency MBS sometime in 2011. The New York-based real estate investment trust will partner with Barclays Capital to close on a $100 million mortgage loan warehouse facility, which is subject to future increases. Two Harbors will buy prime, fixed-rate jumbo residential mortgages and aggregate them in the facility. It is currently targeting a $250 million deal size for the initial securitization. Barclays will act as underwriter, according to Two Harbors. The program is aimed at...

The legacy of toxic subprime and Alt A MBS from Countrywide Financial continued to spread last week, with a California appeals court deciding to allow a class action involving a number of pension funds and other institutional investors against the lender to proceed. The plaintiffs allege that Countrywide and a number of its subsidiaries, officers and U.S. investment banks violated the Securities Act of 1933 by making materially false and misleading statements in over 450 prospectus supplements relating to the issuance of more than $300 billion in subprime and Alt A securities. Specifically, plaintiffs allege the defendants misrepresented the quality of...

Pending inter-agency proposals to implement risk-retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act could undermine the return of private capital to the housing finance market, warned industry participants. Testifying this week during a House subcommittee hearing, the Mortgage Bankers Association and other critics of risk retention said that a narrow definition of a “qualified residential mortgage” and overemphasis on higher downpayment may have an adverse impact on credit availability. MBA Chairman Michael Berman told members of the House Financial Services Subcommittee on Insurance, Housing and Economic Opportunity that while...

Narrowly defined "qualified residential mortgages" under risk-retention rules and anything less than an absolute "qualified mortgage" safe harbor can severely limit credit availability and ultimately hamper the return of non-agency securitization, warned Amherst Securities Group in a new report. Arguing that risk retention may not produce any net benefit, the Amherst report said that the proposed definition of a qualified residential mortgage is too restrictive and that it may result in less mortgage credit being available. The effect would be more detrimental if Congress decides to further limit the reach of both...