The Federal Housing Finance Agency last week outlined its plans to design a new securitization system and model pooling and servicing agreements to improve Fannie Mae and Freddie Mac operations and help revive the non-agency market. Non-agency market participants welcomed the FHFA’s proposed new utility-like infrastructure but said it should not be mandatory for non-agency transactions. The FHFA said upgrades are needed in the MBS systems of the government-sponsored enterprises and “it makes sense to direct ...

In collaboration with the Residential Mortgage-Backed Securities Working Group, New York Attorney General Eric Schneiderman filed a lawsuit last week against JPMorgan Chase and two related entities. The lawsuit targets underwriting on nonprime MBS deals, and Schneiderman said it could serve as a model for future planned actions by the Obama administration’s RMBS Working Group. “There are more cases to come,” he said. “We believe that this is a workable template for future actions against issuers of ...

Current efforts by numerous firms to establish a non-agency market for real estate owned rental securitizations are worthwhile, based on investor interest in the emerging sector. Investors are skeptical of REO rental assets but also willing to participate in the market, even without AAA ratings. “We look forward to being part of the discussions with issuers, investors and operators,” Youriy Koudinov, a director at TIAA-CREF, said this week during a seminar hosted by the American Securitization Forum. “As prudent ...

The Federal Deposit Insurance Corp. will implement a new definition for subprime mortgages beginning April 1, 2013. The definition will apply to banks with assets of $10 billion or more as part of the FDIC’s Large Bank Pricing model, which determines deposit insurance rates. The reporting deadline was revealed this week as the FDIC published a final rule to determine Deposit Insurance Fund assessment rates for large and highly complex insured depository institutions. The rule was prompted after ...

Historically low mortgage interest rates generated a huge supply of refinance business during the third quarter of 2012 that drove Fannie Mae and Freddie Mac securitization volumes higher, according to a new ranking and analysis by Inside MBS & ABS. A total of $437.7 billion of single-family MBS were issued during the third quarter, up 15.8 percent from the previous three-month period. It was the biggest production volume for the market since the fourth quarter of 2010, and it lifted year-to-date issuance for the first nine months of the year to $1.207 trillion – a 43.2 percent increase over the same period in 2011. MBS issuance gained...[Includes one data chart]

New York Attorney General Eric Schneiderman this week sued JPMorgan alleging fraudulent and deceptive acts in the pooling and sale of residential MBS by now-defunct Bear Stearns. Filed in the New York Supreme Court in Manhattan, the lawsuit is the first of several legal actions contemplated by the Residential MBS Working Group, a state-federal task force created by President Obama earlier this year to investigate those suspected of contributing to the financial crisis through the sale of defective mortgage certificates. Bear Stearns, which was taken over by JPMorgan, and co-defendant EMC Mortgage perpetuated...

Investors in vintage non-agency MBS have seen strong returns in recent months, particularly in August. Industry analysts suggest that returns are likely to remain elevated as there are few remaining risks for non-agency MBS and supply is limited. “Despite increased profit taking on this year’s impressive performance, bonds continue to trade well,” according to analysts at Bank of America Merrill Lynch. “While demand for non-agency bonds will likely grow as home prices recover, it will not be met with more new supply as is seen in the broader high-yield bond universe. This is a very strong backdrop for further price appreciation.” From the beginning of June through the end of September, pricing on the ABX index that tracks subprime MBS has...

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]