Investors in non-agency mortgage-backed securities would rather not fight in court to enforce buybacks, according to Talcott Franklin, shareholder of his namesake law firm. However, Franklin said litigation has been necessary because servicers – largely those affiliated with lenders or MBS issuers – have not done enough to prevent losses. “If the banks can get it together on the servicing side and try to reduce these losses, that is going to be the best way for them to proactively reduce these [buyback] risks,” he said this week during a webinar hosted by Inside Mortgage Finance Publications. ...

The servicing compensation structure for non-agency mortgages must be reformed, according to Federal Reserve Governor Sarah Bloom Raskin. The Federal Housing Finance Agency noted that the options it proposed for agency mortgages last week could also serve as a model for non-agency mortgages and could help revive the sector. “It is imperative to reconsider the compensation structure so that servicers have adequate incentives to perform payment processing efficiently on performing mortgages, and to perform effective loss mitigation on delinquent loans,” Raskin said in a speech this week. ...

Lenders looking to participate in Redwood Trust’s jumbo securitization efforts must meet high standards, according to a review of the real estate investment trust’s new jumbo mortgage-backed security. The major originators in the $375.2 million jumbo MBS Redwood issued last week were all considered “above average” by Fitch Ratings. Redwood has invested significant resources into its jumbo conduit and correspondent program in an effort to revive non-agency securitization. ...

Lenders and consumer advocates are bitterly divided over rules for alternative mortgages released by the Consumer Financial Protection Bureau in July. While lenders generally support the preemption in the interim final rule, the Center for Responsible Lending raised major concerns about the rule and the “spread of the subprime virus.” The CFPB’s interim final rule on the Alternative Mortgage Transaction Parity Act was required by the Dodd-Frank Act. ...

Alt A mortgages and interest-only loans held by Freddie Mac will be subject to new buyback reviews due to issues with the government-sponsored enterprise’s settlement with Bank of America. An audit released last week suggests that the GSE lost billions of dollars by failing to include thousands of alternative mortgages in the buyback analysis. The Federal Housing Finance Agency’s Office of Inspector General conducted the audit and – at the request of the FHFA and Freddie – redacted the exact amount of money potentially “left on the table.” ...

Use of principal reduction in loan modifications increased in the second quarter of 2011, according to the Office of the Comptroller of the Currency. Principal reduction has gained popularity for non-agency mortgages after initially being used almost exclusively on portfolio loans. Some 8,645 principal reduction mods were completed by major banks and thrifts in the second quarter of 2011, according to the OCC. Non-agency mortgages accounted for 48.9 percent of all principal reduction mods in the second quarter of 2011, with portfolio mortgages accounting for the rest of the activity. ...

Holdings of home-equity loans by banks and thrifts fell by 1.9 percent in the second quarter of 2011 compared with the previous quarter, according to the Inside Mortgage Finance Bank Mortgage Database. Delinquencies on the loans remain low but banks are being subject to greater regulatory scrutiny regarding their treatment of HELs. Banks and thrifts held $1.23 trillion in HELs at the end of the second quarter of 2011. The serious delinquency rate on the loans was 2.04 percent, down from 2.09 percent the previous quarter. ... [Includes one data chart]

Two nonconforming-focused mortgage companies controlled by Fortress Investment Group have suffered setbacks recently. Springleaf Financial Services is facing investor uncertainty, while Nationstar Mortgage was unsuccessful in its bid for Bank of America’s correspondent division. Fitch Ratings downgraded Springleaf’s issuer default rating to CCC from B- in September. ...

Subprime lending remained subdued in 2010, according to newly released data from the Home Mortgage Disclosure Act. Higher-priced mortgages – the Federal Reserve’s revised proxy for subprime mortgages – accounted for 3.2 percent of the number of loans originated in 2010. Some $7.14 billion in higher-priced mortgages were sold in 2010, according to a new analysis by Inside Nonconforming Markets. Ginnie Mae continued to account for the largest portion of the sales at 35.0 percent in 2010, up from 21.1 percent the previous year. ... [Includes one data chart]

Negative equity among jumbo borrowers with securitized mortgages is set to increase significantly, according to Fitch Ratings. This week, the rating service projected that half of non-agency jumbo borrowers will end up with negative equity, up from more than a third of such borrowers currently. ... [Includes three briefs]