In exploring how to attract more private capital into the housing finance system, policymakers should permit the jumbo mortgage market to stand on its own absent a government guaranty and make any future government backing explicit, experts told members of the Senate Banking Subcommittee on Securities, Insurance and Investment this week. Given that loans over the old $417,000 conforming limit account for a quarter of the dollar volume of mortgages per year, a slow and measured hand off of this segment to private capital is a low-maintenance way to reduce the government’s mortgage footprint, according to Mark Willis, resident research fellow at the New York University Furman Center for Real Estate and Urban Policy. Inside Mortgage Finance estimates that loans exceeding $417,000 accounted for 16.8 percent of originations in 2012. “Opening up the market above $417,000 should provide...

Officials at Redwood Trust suggest that the change in pricing for AAA tranches on new non-agency MBS in recent months has been driven by supply and demand, not concerns about the quality of issuance. “The market had come too far, too fast, and the supply and demand imbalance initiated a correction,” Redwood said. The premium on Redwood’s latest transaction was about 1.75 percentage points above an interest rate benchmark, resulting in a 2.59 percent premium for investors. Redwood said deals it issued in January sold with premiums as low as 97 basis points with yields of less than 200 bps for investors. The real estate investment trust said...

As default rates on vintage non-agency MBS have improved, performance and investor proceeds this year will largely be based on servicers’ actions, according to Standard & Poor’s. Loss mitigation, work-out timelines and other servicer behaviors are of particular concern for investors. S&P said its outlook for performance of vintage non-agency MBS is stable. Feedback from servicers indicates that the number of new loan modifications on mortgages in non-agency MBS this year will be near levels seen last year and well below activity in 2010. Instead of quantity, S&P said, servicers have focused on quality. “It appears...

Standard & Poor’s was the most active rating service in the non-mortgage ABS market during the first quarter of 2013, according to a new Inside MBS & ABS analysis, while DBRS continued to dominate the non-agency MBS space. S&P rated a total of $31.9 billion of newly issued ABS during the first three months of the year, or 67.8 percent of total issuance. That was up from the company’s 58.1 percent share of ABS ratings for all of 2012. S&P was particularly strong in rating credit card ABS, covering 86.1 percent of that market after grading just 50.3 percent of last year’s card deals. Because nearly all public deals have multiple ratings, the sum of the ratings by firms exceeds...[Includes two data charts]

Bank of America and MBIA announced a settlement this week of a long-running dispute regarding representations and warranties on mortgages securitized by Countrywide Financial. The settlement benefits non-agency MBS wrapped by MBIA, according to industry analysts. The settlement applies to all outstanding rep and warrant claims and all other claims between the bank and bond guarantor. BofA agreed to pay MBIA approximately $1.6 billion in cash and remit to MBIA all of the outstanding notes in the firm that BofA acquired in December. BofA also will terminate...

Standard & Poor’s, along with Moody’s Investors Service, last week settled a lawsuit involving their pre-financial crisis securities ratings before it got to a jury trial, but S&P suffered a setback with another ratings challenge lawsuit brought by Connecticut state officials. Experts predict a pickup in MBS litigation ahead of pending filing deadlines for legal challenges. S&P and Moody’s reached the confidential settlement with a group of 14 plantiffs led by Abu Dhabi Commercial Bank and King County, WA. Abu Dhabi and the over investors filed suit in 2008 and 2009 in Manhattan federal court claiming that the defendants misled them by allegedly inflating ratings on two structured investment vehicles they purchased. By settling the investors’ lawsuit, which claimed $638 million in losses, S&P and Moody’s were able...

Issuance of securities backed by servicer advance receivables has increased significantly recently and is expected to continue to grow, fueled by nonbank servicers and demand from investors. However, analysts at Standard & Poor’s warn that servicers are increasing their use of unconventional features and product types, which could increase risks for investors. S&P rated $7.8 billion in servicer advance securities from the second quarter of 2012 through the end of the first quarter of 2013, up from $7.7 billion from the two-year period ending in the first quarter of 2012. S&P said issuance is expected to increase as more and more servicing assets trade hands and servicers use securitization to fund their collateral acquisitions. Recent issuance has been driven...

Federal regulators said they will collectively work with Congress to reduce the agency market share of MBS issuance. The members of the Financial Stability Oversight Council said completion of the qualified-residential mortgage rule will also help increase non-agency activity. “The council recommends that the Treasury Department, the Department of Housing and Urban Development, and the Federal Housing Finance Agency continue to work with Congress and other stakeholders to develop and implement a broad plan to reform the housing finance system,” the FSOC said in its 2013 annual report, released late last week. Tobias Adrian, a vice president at the Federal Reserve Bank of New York and contributor to the report, said...

Issuance of non-agency jumbo mortgage-backed securities continues to increase along with the number of issuers participating in the market. Issuers acknowledge that spreads on AAA non-agency MBS are widening, causing margins to decline, but they suggest that a significant increase in non-agency MBS production will help tighten spreads, benefitting issuers. Credit Suisse issued its third non-agency jumbo MBS of the year this week. The $393.77 million deal received AAA ratings from DBRS and ...

While originations included in non-agency jumbo mortgage-backed securities in recent years have been of high-quality, significant differences exist among originators, according to a new analysis by Inside Nonconforming Markets. The average credit score on mortgages included in Redwood Trust’s non-agency jumbo MBS from 2011 through the first quarter of this year was 771.2, largely driven by First Republic Bank, which accounted for 47.0 percent of originations securitized by Redwood ... [Includes two data charts]