The Securities and Exchange Commission is conducting an in-depth investigation of non-agency mortgage-backed securities issued by Ally Financial’s Residential Capital, according to court documents released this week. The documents revealed that due diligence provider R.R. Donnelley & Sons Company has delayed the investigation, which started in February. “The commission is investigating ResCap’s origination and underwriting practices used to make and approve loans in connection with offerings of ...

The rating services report increasing inquiries regarding potential ratings for securitization of income from real-estate owned rental properties. The first REO rental non-agency mortgage-backed security could be issued later this year, but Suzanne Mistretta, a senior director at Fitch Ratings, suggested that AAA ratings are unlikely initially. “The lack of historical data and ambitious growth strategies by regional operators will make high investment-grade ratings on these transactions difficult ...

The Federal Housing Finance Agency became the biggest opponent of proposals for local governments to use eminent domain to seize underwater loans from non-agency mortgage-backed securities. “FHFA has determined that action may be necessary on its part to avoid a risk to safe and sound operations at its regulated entities and to avoid taxpayer expense,” the conservator of the government-sponsored enterprises said in response to the proposed use of eminent domain to forgive principal on mortgages ...

Standard & Poor’s announced late last week that it updated the criteria for ratings on non-agency MBS with mortgage collateral originated before 2009. The new standards are effective immediately and will result in significantly more downgrades than upgrades, according to S&P analysts. The standards update criteria for credit, cash flows and rating stability, and introduce new methods for analyzing transactions that have fewer than 100 loans remaining in the pool. Vandana Sharma, a managing director and lead analytic manager for U.S. residential MBS ratings at S&P, said the new standards reflect key market trends. “In light of the stabilization of home prices and delinquencies in the U.S. mortgage market, these criteria seek...

The interest rate environment is ripe for jumbo borrowers, but industry participants warn that underwriting standards for these loans are at least as stringent as standards for agency loans and much different than five years ago when many jumbo borrowers might have last bought a home or refinanced. “Be prepared to expose everything to examination,” said Bill Reiter, a senior loan officer at PNC Mortgage, speaking at a webinar last week hosted by Realtor Magazine. He noted that income, assets, tax returns and ...

Federal regulators this week proposed requiring a physical inspection of a property’s interior by a qualified appraiser for originations of “higher-risk mortgages,” the latest proxy for subprime loans. The requirement was included in the Dodd-Frank Act and could prompt more than 50,000 new appraisals per year. The Consumer Financial Protection Bureau estimated that full-interior appraisals are conducted as part of current practice in higher-risk mortgage originations on 95.0 percent of purchase-money transactions ...

Chimera Investment announced last week that it needs to restate quarterly earnings and other reports beginning with the third quarter of 2008 due to accounting on its portfolio of non-agency mortgage-backed securities. The real estate investment trust has been grappling with the issue for a year and has not issued earnings since the third quarter of 2011. While still completing an evaluation of the restatement, Chimera said the change will result in lower income along with a more than doubling of ...

Wells Fargo recently determined that it will refinance up to 40,000 borrowers as part of the recent $25.0 billion national servicing settlement. The bank had previously estimated that it would refi 20,000 loans under the settlement, which targets portfolio loans with negative equity. “The expectations ... exceed the amounts that would result from just meeting our minimum commitments under the refinance program due to the significantly higher than expected response we have received from our customers in ...

Home Affordable Modification Program servicers are increasingly offering principal reduction loan modifications to non-agency borrowers, according to the Treasury Department. The increase comes after the Treasury tripled the incentives that can be paid to investors beginning in March, though principal reduction mods have yet to increase significantly due to the change. In recent months, about 70.0 percent of eligible non-agency HAMP borrowers received some form of principal reduction ... [Includes one chart]

It has been another busy week in the turbulent world of litigation over non-agency mortgage-backed securities. The Federal Deposit Insurance Corp. filed lawsuits regarding non-agency MBS, Wells Fargo agreed to settle non-agency MBS-related charges with the Securities and Exchange Commission and the Department of Justice and the SEC dropped its non-agency investigation into actions by Goldman Sachs. The FDIC lawsuits against 15 issuers and underwriters relate to $1.46 billion in AAA tranches of non-agency MBS ...