The representations and warranties used in jumbo MBS can sufficiently handle some breaches but fail to completely protect investors, according to Moody’s Investors Service. In a report released this week, the rating service noted that issuers use two main varieties of reps and warrants: those that allow for an open-ended review of loans and those that employ a prescriptive framework. The open-ended reviews are seen in jumbo MBS from Redwood Trust, WinWater Home Mortgage and others...

Banks have retained a significant volume of newly originated jumbo mortgages and even certain conforming loans in recent years, but analysts at Deutsche Bank Securities stress that the “conventional wisdom” regarding bank demand for MBS is wrong. “Despite anecdotal evidence of banks retaining more whole loans – they are more and more reliant on MBS as a percentage of their overall exposure to residential mortgages than they have been at any point in the past 15 years,” the analysts said in a report released last week. Bank demand for MBS holdings has increased...

Jumbo mortgage production last year grew its share of total originations to its highest level since well before the financial collapse that launched the era of the “agency jumbo” loan. Mortgage lenders cranked out a total of $291.1 billion of home mortgages with loan balances exceeding the old conforming loan limit of $417,000. Like everything else in mortgages, jumbo production was down from 2013, by 22.4 percent. But total mortgage originations fell...[Includes three data charts]

JPMorgan Chase is shifting its mortgage production focus away from agency loans toward the jumbo market. “Our focus is on maximizing our share of high-quality originations,” Kevin Watters, CEO of mortgage banking at Chase, said last week during the bank’s annual investor presentation. He provided a slide showing Chase’s market share in terms of total originations, conventional mortgages, government mortgages and jumbo loans. As measured from ...

With the ink still wet on a $2.6 billion settlement agreement reached in principle with the Department of Justice late last month, Morgan Stanley is apparently in discussion with New York Attorney General Eric Schneiderman to avert another potential MBS lawsuit. In a recent regulatory filing, the investment bank disclosed that the New York AG Office, also a member of the presidential RMBS Working Group that brought the previous MBS lawsuit against the firm, indicated its intention to file a similar lawsuit. The lawsuit is related to approximately 30 subprime securitizations sponsored by Morgan, the AG wrote in a Jan. 13 notice to the bank. The suit would allege...

One popular strategy among investors trying to profit from the woes of Ocwen Financial is to purchase subprime MBS tranches being serviced by the company and then declare a “material breach” in its servicing covenants. Speculators have been doing this while selling short Ocwen’s stock. According to analysts and investors familiar with the strategy – which is being employed by a fund called BlueMountain (and others) – subprime tranches can be bought at deep discounts. A material breach can occur when a rating agency downgrades the servicer, in this case Ocwen. For several weeks in January and February when Ocwen’s shares were plunging to new lows, it appeared...

Ocwen Financial, the largest servicer of nonprime mortgages, continues to face regulatory and legal pressure as investors voted to terminate the company as servicer of subprime mortgage-backed securities they own. The company said its servicing of two MBS with a combined unpaid principal balance of $260 million is being transferred. The termination vote was allowed due to downgrades to Ocwen’s servicer ratings. Some 119 non-agency MBS ... [Includes one data chart]

Originations of interest-only mortgages remained fairly steady through the end of 2014, suggesting that the new qualified-mortgage standard had limited impact on production. A group of 15 lenders originated $27.72 billion in IOs in 2014, according to Inside Nonconforming Markets, down 25.9 percent from 2013. The QM standards took effect for loans with application dates beginning Jan. 10, 2014. Interest-only loans are not eligible for QM status ... [Includes one data chart]

Issuers of jumbo mortgage-backed securities offered investors variety in two deals that closed last week and an MBS planned for next week. Separate jumbo MBS from WinWater Home Mortgage and FirstKey Mortgage were issued on Feb. 27. The $372.36 million WinWater Mortgage Loan Trust 2015-2 included two non-qualified-mortgages. Debt-to-income ratios above 43 percent caused the two loans to be deemed non-QMs, according to Standard & Poor’s ...

Strong investor demand continues to make whole-loan sales more profitable than securitization, according to Redwood Trust officials. “Throughout 2014, whole-loan buyers provided better pricing and execution for our jumbo home loan sales versus securitization,” said Brett Nicholas, president of the real estate investment trust, during the company’s fourth-quarter earnings call. He said Redwood expects strong demand for jumbo loans in the first part of ...