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 ...

The Federal Housing Finance Agency released requirements that will likely pave the way for increased sales of nonperforming mortgages by Fannie Mae and Freddie Mac. The FHFA said it has approved of sales of nonperforming loans by the government-sponsored enterprises to reduce the number of severely delinquent loans held in their inventories and to transfer risk to the private sector. Freddie has completed two sales of nonperforming ... [Includes one data chart]

Moody’s Investors Service started using new criteria to rate prime non-agency mortgage-backed securities at the end of February. As part of the new criteria, the rating service is allowing non-agency MBS issuers to have access to the tool used to estimate Moody’s initial calculation of triple-A stress loss for a potential security. Moody’s Individual Loan Analysis model, known as MILAN, will be the main quantitative tool for collateral analysis by ...

Although the new rules for surviving spouses of borrowers with FHA-insured reverse mortgages address many of the issues raised by non-borrowing spouses, some questions remain unanswered, according to legal experts. The guidance in Mortgagee Letter 2015-03 provides insufficient answers to the issues it was meant to address, said Robert Couch, a partner with the Birmingham, AL, law firm of Bradley Arant Boult Cummings and former general counsel at the Department of Housing and Urban Development. Servicers should take note of those issues and seek further clarification, he said. Issued on Jan. 29, the guidance provides a way for lenders to proceed after a borrower with a Home Equity Conversion Mortgage loan dies and is survived by a non-borrowing spouse. It allows a lender to assign to HUD HECMs that are in default due to the death of the borrower, as long as certain ...

Endorsements of FHA-insured reverse mortgages jumped 31.7 percent in the fourth quarter of 2014 from the previous quarter with purchase HECMs accounting for more than 22 percent of the total. On the other hand, endorsements were down 9.1 percent year-over-year because of new restrictive HECM rules that were implemented last year. Endorsements totaled $13.9 billion for the year. All top five HECM lenders posted sequential gains. Leader American Advisors Group had a 12-month total of $2.0 billion, representing 14.7 percent of the market. Second-ranked Reverse Mortgage Solutions closed out the year with $1.0 billion in total endorsements and a 7.4 percent market share. One Reverse Mortgage, Liberty Home Equity Solutions and Proficio Mortgage Ventures comprised ... [1 chart}