Interest shortfalls on non-agency MBS have increased significantly in the past five months, according to research by Morningstar Credit Ratings. The servicing-related issue causes investors to absorb unpredictable losses and could result in downgrades of non-agency MBS. A sample of 2,858 non-agency MBS deals (21,727 tranches) examined by Morningstar in May and again in August showed a 38.0 percent increase in the number of deals with interest shortfalls. Some 18.6 percent of non-agency MBS deals examined by Morningstar for the August remittance period experienced a shortfall in at least one tranche. Shortfalls increased overall even though 21.8 percent of the shortfalls seen in March had...

Gibbs & Bruns, the law firm representing non-agency MBS investors that reached a precedent-setting settlement with Bank of America, is now targeting Wells Fargo and Morgan Stanley. The law firm’s clients issued Wells and Morgan Stanley a notice of non-performance last week identifying covenants in pooling and servicing agreements that the servicers have allegedly failed to perform. “The holders’ notice alleges that each of these failures has materially affected the rights of the certificate holders and constitutes an ongoing event of default in the servicer’s performance under the relevant PSAs,” the law firm said. Bank of America received...

The Federal Reserve is launching its aggressive new campaign to boost economic growth by gobbling up the lion’s share of new agency MBS production in a stagnant market. The volume of outstanding single-family agency MBS grew by just $651 million during the second quarter of 2012, according to a new Inside MBS & ABS analysis. At $5.382 trillion, the agency MBS market at the end of June was down 0.5 percent from the same point in 2011. Because the non-agency MBS market is...[Includes two data charts]

The Federal Reserve’s plan to purchase an additional $40 billion in agency MBS per month, above and beyond the $25 billion to $30 billion the Fed has been buying, will primarily benefit the agency MBS sector but could also spur revitalization of the non-agency market, analysts say. The open-ended plan, in effect until the U.S. economy and employment picture show significant improvement, adds some $480 billion in annual demand for agency MBS, a market that is on track to produce about $1.5 trillion in gross issuance. “The pressure on asset values to richen further will be substantial,” said analysts at Bank of America/Merrill Lynch. The additional MBS purchases and ongoing principal investments will...

House Financial Services Committee member John Campbell, R-CA, last week introduced H.R. 6397, the Defending American Taxpayers From Abusive Government Takings Act, legislation that would prohibit the origination of taxpayer-guaranteed mortgages in jurisdictions of the country where the power of eminent domain would be used to seize mortgages. If Campbell’s legislation is enacted – which is unlikely in the few days remaining in the legislative calendar of the 112th Congress, but probably will be resurrected in the 113th – it could prove fatal to a controversial eminent domain mortgage seizure plan proposed in recent months by Mortgage Resolution Partners. MRP’s plan would involve...

Redwood Trust offered no surprises in its fourth jumbo MBS of the year, a $313.2 million deal that closely resembles the six previous transactions the firm has issued since pioneering the rebirth of the non-agency market back in 2010. With squeaky clean collateral and an investor-friendly securitization structure, Sequoia Mortgage Trust 2012-4 includes three triple-A classes totaling $290.4 million that will be supported by 7.30 percent credit enhancement. That’s the same level as in Redwood’s previous deal, significantly lower than the 8.25 percent enhancement on its first 2012 transaction and slightly above the 7.15 percent level on its second deal this year. In several areas, the latest Redwood MBS includes...

Redwood Trust is set to issue its fourth non-agency jumbo mortgage-backed security of the year, according to presale reports released this week. The $313.22 million non-agency jumbo MBS includes only slight changes to improve on securities previously issued by the real estate investment trust. Sequoia Mortgage Trust 2012-4 is set to receive triple-A ratings from Fitch Ratings, Kroll Bond Rating Agency and Moody’s Investors Service, with 7.30 percent credit enhancement on the highest-rated ... [Includes one data chart]

The eminent domain proposal from Mortgage Resolution Partners will either painlessly help thousands of non-agency borrowers or severely harm the non-agency market, according to industry participants. The newly expanded plan could even hinder efforts to revive the non-agency market going forward, according to MRP’s opponents. “Eminent domain is an important method for mitigating losses to investors,” Graham Williams, CEO of MRP, said in a comment letter last week to the Federal Housing Finance Agency ...

Lender-related underwriting and disclosure issues have prompted a significant increase in liability for non-agency mortgage-backed security issuers, based on a court ruling last week. The U.S. Court of Appeals for the Second Circuit found that liability extends beyond trusts specifically purchased by investors to potentially all trusts in an issuer’s shelf with mortgages originated by the same lenders. “Investors may now seek to intervene to broaden classes in MBS class actions that don’t explicitly ...

Performance of jumbo mortgages originated before 2005 is declining, bucking a trend among non-agency mortgages, according to Fitch Ratings. Most of the remaining pre-2005 jumbo borrowers have been unable to refinance. “Many high-quality mortgage borrowers are refinancing to take advantage of record-low interest rates, leaving the remaining mortgage pools increasingly concentrated with borrowers unable to refinance,” said Grant Bailey, a managing director at Fitch. More than 93.0 percent of the roughly ...