In another legacy residential MBS legal action, the California Public Employees’ Retirement System this week reached a record $130 million settlement with Moody’s Investors Service over the ratings service’s allegedly erroneous ratings of AAA-rated structured investment vehicles in the run-up to the financial crisis. Back in 2009, CalPERS sued Moody’s – along with Standard & Poor’s and Fitch Ratings – after the pension fund claimed massive losses from investments in three structured investment vehicles that depended on the liquidity of assets that proved to be illiquid, such as subprime MBS, collateralized debt obligations and other ABS. In the lawsuit, CalPERS accused Moody’s of making “negligent misrepresentations” by assigning its highest credit rating to the investments. This caused significant losses as the market ...

Two Harbors Investment is preparing to issue a jumbo mortgage-backed security that will include loans subject to the TRID integrated disclosure rule. The deal could help resolve the so-called “TRID-lock” seen in the jumbo secondary market as industry participants try to sort out the liability posed by the controversial rule. “TRID has proved to be a very strong headwind,” Diane Wold, a managing director at Two Harbors, said last week at the ABS Vegas conference produced by ...

Bank and thrift first-lien portfolio holdings continued to grow in 2015, including a sharp increase in the fourth quarter, according to a new ranking and analysis by Inside Nonconforming Markets. Banks and thrifts held a total of $1.87 trillion in first-liens in portfolio at the end of the fourth quarter of 2015, up 0.9 percent from the end of the previous quarter and up 3.4 percent from the fourth quarter of 2014. The increase in holdings was largely driven by ... [Includes one data chart]

One of the major obstacles to increased issuance of non-agency mortgage-backed securities remains the lack of a deal agent to protect investors. Until last week, investors had not even agreed on the general responsibilities for a deal agent, suggesting that the implementation of the concept was a long way off. A working group, co-led by Alessandro Pagani, head of securitized assets at Loomis, Sayles & Company, announced principles for a deal agent last week ...

Two nonbanks with jumbo conduit operations have faced issues recently. Premium Point Investments recently announced the New Issue Opportunity Fund will no longer invest in new jumbo mortgage-backed securities from WinWater Home Mortgage. Premium Point is an asset-management firm that established WinWater in late 2013. Premium Point said the NIOF purchased approximately $3.3 billion in whole loans and invested in 10 mortgage-backed securities issued by ...

The U.S. Department of Justice will reportedly decide within the next few months whether or not to bring the hammer down on Moody’s Corp. for allegedly overstating its ratings on MBS transactions in the run-up to the financial crisis, Bloomberg reported last week, citing “people familiar with the matter.” According to the news account, the Justice Department is scrutinizing credit ratings that Moody’s assigned during the housing boom and trying to determine if the firm massaged its criteria to earn business from Wall Street banks that were bundling residential mortgages into securities. A proposed settlement has apparently been...[Includes one data table]

A handful of recent and current U.S., European and international regulatory efforts “pose a serious threat to securitization as a critical source of funding for the real economy,” especially when taken together, a top securitization official told lawmakers in Washington, DC, this week. Testifying before the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, Richard Johns, executive director of the Structured Finance Industry Group, took on a handful of the industry’s most problematic regulatory initiatives. Among them were the liquidity ratio rules that U.S. regulators implemented in late 2014, and the new Basel III capital rules that were adopted by the Basel Committee on Banking Supervision. He also addressed...

Many issuers of jumbo mortgage-backed securities appear to have pulled back from the market due to weak demand from investors. Thus far in 2016, only two jumbo MBS have been issued. At the same point in 2015, eight jumbo deals had been issued. Hatteras Financial issued its first jumbo MBS in December. Last week, officials said the real estate investment trust will reduce its capital allocation to jumbo securitization business this year. “Until the yield curve steepens and ...

Ellington Financial is increasing its investments in non-qualified mortgages as officials at the nonbank expect strong profits from the loans. Ellington held $9.2 million in non-QMs at the end of 2015, up from $3.5 million at the end of the third quarter. The nonbank started financing purchases of non-QMs under a facility with an unidentified “large investment bank” in January. “While it took a little longer than I had hoped to get here, the non-QM pipeline will have a meaningful ...

Determining a borrower’s ability to repay a bank-statement mortgage is more complicated than evaluating a borrower underwritten with full income documentation, according to a recent report by Moody’s Investors Service. The rating service noted that originations of bank-statement loans tend to be non-qualified mortgages for self-employed borrowers. “The quality of loans originated through bank-statement income documentation programs depends heavily on ...