The massive losses taken by the government-sponsored enterprises on their non-prime holdings are not over yet. Fannie Mae and Freddie Mac warned this month that they expect greater credit losses for 2011 than the hits they took last year, largely due to the continued poor performance of legacy non-prime acquisitions. The GSEs had a combined $430.51 billion in non-prime holdings as of the second quarter of 2011, according to a new ranking and analysis by Inside Nonconforming Markets. ... [includes one data chart]

Non-agency servicers are increasingly turning to short sales as a better option than foreclosure for borrowers, mortgage-backed security investors and servicers, according to industry analysts.“In addition to helping to sell the property at a higher price, a short sale can also lower loss severities by shortening the amount of time over which expenses can accrue, by reducing the total amount of principal and interest that the servicer must advance on the loan, and by eliminating legal costs associated with foreclosure,” according to Moody’s Investors Service. ...

Non-agency mortgage-backed security investors frustrated with the lack of buybacks on non-agency MBS are being encouraged to explore servicer termination. The tactic is less expensive and less burdensome than researching potential buybacks, according to Steve Ruterman, an independent consultant to non-agency MBS investors.“While much of the focus in recent years has been on enforcing put-back rights, there has been talk of broader efforts to replace servicers,” he said. “Creditors would be wise to make better use of this complementary strategy going forward.” ...

The Department of Justice is reportedly investigating Standard & Poor’s and Moody’s Investors Service regarding the ratings the firms placed on non-agency mortgage-backed securities. The increased attention on the rating services follows S&P’s recent downgrade of the credit rating for the U.S., revelations by a former Moody’s employee and numerous other investigations that found problems with the ratings on non-agency MBS. In a letter sent this month to the Securities and Exchange Commission, William Harrington, a former senior vice president at Moody’s, alleged that the rating service knowingly published “worthless opinions” on non-agency MBS. ...

Springleaf Financial reportedly plans to issue a $292 million mortgage-backed security backed by seasoned subprime mortgages. Fortress Investment Group acquired an 80 percent stake in the company – formerly known as American General Finance – from American International Group in August 2010. ... [includes three briefs]

The Department of Housing and Urban Development’s Office of the Inspector General called for improvements in the servicing of Home Equity Conversion Mortgage loans, particularly in detecting and reporting fraud, after auditors discovered certain advance payments that were made after the borrowers were reported to have died. Although most of the suspicious payments were due to posting errors, some transactions raised red flags, the IG report said. There was no evidence that servicers had sent those potentially fraudulent cases to HUD for further action, it added. The anomalies were found during a routine OIG audit of the HECM program, which insures ...

The Treasury Department is making significant changes to the Home Affordable Modification Program designed to match some of the success servicers have had with proprietary loss mitigation programs.Non-agency servicers participating in the Home Affordable Foreclosure Alternatives short sale and deed-in-lieu of foreclosure portion of HAMP need to update their policies immediately, the Treasury announced this week. The structure for servicer incentive payments on non-agency first-lien HAMP mods will also change in October. "Unless prohibited by ... [includes one data chart]

Ocwen officials said last week that they are in talks with various mortgage holders to acquire more than $250 billion in mortgages to service. “We are in the midst of several discussions that could result in one or more substantial additional transactions later this year or early next year,” said William Erbey, chairman of Ocwen.Ron Faris, president and CEO of Ocwen, added that many of the deals are large and could involve servicing platforms. Most of the potential acquisitions are related to primary servicing, not subservicing.The announcement comes as Ocwen is set to ...

Preparations for a hoped-for return of non-agency jumbo origination and securitization have taken a financial toll on Redwood Trust, according to officials at the real-estate investment trust. “We have built our origination businesses for more volume than is currently available on the right terms,” Redwood officials said last week as part of their earnings release for the second quarter of 2011. “We believe our scale will ultimately pay off. For now, however, our operating costs are high relative to the net revenues we can earn off our invested capital without taking ...

A decline in high-cost conforming loan limits come October will either destabilize the mortgage markets or have a negligible impact on borrowers, depending on who is talking. Legislation to maintain temporarily elevated loan limits was recently introduced in the Senate, leading some non-agency players to fear that an extension is more likely. Sens. Robert Menendez, D-NJ, and Johnny Isakson, R-GA, last week introduced S. 1508, “the Homeownership Affordability Act of 2011.” The bill would extend high-cost conforming loan limits of up to $729,750 until ...