First-lien mortgages held in bank and thrift portfolios increased by 4.1 percent at the end of the second quarter of 2012 compared with the same period in 2011, according to an Inside Nonconforming Markets analysis of bank call report data. The strong increase comes as banks actively sell poorly performing legacy mortgages and suggests that lenders have increased their non-agency portfolio originations. Of the 21 banks and thrifts with at least $10.0 billion in first-lien holdings as of the ... [Includes one data chart]

Special servicers are set to receive more than $300.0 billion in distressed agency mortgages, according to industry analysts. The projections come after positive reviews of Fannie Mae’s controversial purchase and transfer of $73.0 billion in mortgage servicing rights from Bank of America in 2011. The Federal Housing Finance Agency and the FHFA Office of Inspector General each determined that Fannie paid a premium for BofA’s mortgage servicing rights, but significant savings will be recognized due ...

Lenders warn that the Consumer Financial Protection Bureau’s proposed changes to stringent rules for “high-cost” mortgages will dramatically restrict credit availability for borrowers. Consumer advocates counter that the CFPB’s proposal to expand coverage of the Home Ownership and Equity Protection Act is appropriate and they are concerned with potential evasion of the pending rule. “The high-cost proposal would inevitably result in the further tightening of credit, even for creditworthy applicants,” ...

The market share for higher priced mortgages doubled in 2011 compared with the previous year, according to an Inside Nonconforming Markets analysis of Home Mortgage Disclosure Act data released last week. However, the market share for the proxy for subprime mortgages used by federal regulators remained tiny at 1.2 percent of the dollar volume of originations reported in 2011. Some $12.38 billion in higher priced mortgages were sold in 2011, up ... [Includes one data chart]

Thomas Hoenig, a director at the Federal Deposit Insurance Corp., last week called for changes to impending Basel III capital standards. Industry analysts have warned that the rules will discourage origination of nontraditional mortgages. “In private discussions I find a good deal of uneasiness about Basel III’s ability to be more effective than previous Basel efforts; however, there is a sense that we cannot go back,” Hoenig said in a speech. “I suggest that we not only can go back, we must.” ...

The National Credit Union Administration filed a lawsuit this week against Barclays Capital alleging misrepresentations in the sale of non-agency mortgage-backed securities to credit unions that subsequently failed. The NCUA said U.S. Central Federal Credit Union and Western Corporate Federal Credit Union paid more than $555 million for the non-agency MBS in question. Debbie Matz, chairman of the NCUA Board, said Barclays issued faulty disclosures on non-agency MBS it underwrote ... [Includes two briefs]

Poor credit history is still the most cited reason for denying a government-backed, purchase-loan application although collateral appears to be gaining traction due to depressed home values and underwater mortgages, data reported by lenders under the Home Mortgage Disclosure Act indicated. The latest HMDA data showed that 25.0 percent of FHA/VA home purchase loan applicants in 2011 were turned down because of credit history issues, perhaps reflecting tighter FHA underwriting and lenders’ credit overlays, which have resulted in average borrower credit scores of 720 and above on new endorsements. Average borrower credit scores for fully underwritten FHA loans, for example, held steady at ... [1 Chart]

The antiquated backbone of the FHA’s Home Equity Conversion Mortgage program will soon be history with the official launch of HERMIT on Oct. 9. HERMIT, or the Home Equity Reverse Mortgage Information Technology, is a second generation, web-based automated system, designed to improve the Department of Housing and Urban Development’s ability to track and monitor its HECM portfolio in real time. The system also automates the payments of insurance claims while increasing efficiency and mitigating risks to the FHA insurance fund. HERMIT consists of a servicing module and an accounting module to ...

Interest rates on fixed-rate mortgages have been at record lows since December 2011, but a considerable number of borrowers continue to choose adjustable-rate mortgages, according to a ranking and analysis by Inside Mortgage Finance. ARM originations rose 7.7 percent from the first to the second quarter of 2012, a slightly faster rate of increase than the overall market. Although ARM originations over the first half of the year were down 3.6 percent from the same period in 2011, ARMs still accounted for 10.3 percent of total loan production. Most ARMs are...[Includes one data chart]

Redwood Trust offered no surprises in its fourth jumbo MBS of the year, a $313.2 million deal that closely resembles the six previous transactions the firm has issued since pioneering the rebirth of the non-agency market back in 2010. With squeaky clean collateral and an investor-friendly securitization structure, Sequoia Mortgage Trust 2012-4 includes three triple-A classes totaling $290.4 million that will be supported by 7.30 percent credit enhancement. That’s the same level as in Redwood’s previous deal, significantly lower than the 8.25 percent enhancement on its first 2012 transaction and slightly above the 7.15 percent level on its second deal this year. In several areas, the latest Redwood MBS includes...