It has been a bad month for nationally recognized statistical rating organizations (NRSROs) as plaintiffs pummeled Standard & Poor’s, Moody’s Corp. and Fitch Ratings with lawsuits in state courts, seeking damages for allegedly fraudulent investment ratings of pre-crisis non-agency MBS. On July 9, liquidators of two Bear Stearns funds sued the three rating agencies and their parent companies in New York state court for more than $1.12 billion in damages, as well as punitive damages, over allegedly inflated ratings of purportedly “high grade” securities. Geoffrey Varga and Mark Longbottom, the joint official liquidators of Bear Stearns, brought...[Includes one data chart]

Issuance of non-agency jumbo mortgage-backed securities increased by 9.9 percent in the second quarter of 2013 compared with the elevated levels seen in the previous quarter, according to the Inside Mortgage Finance MBS Database. However, rising interest rates and a reduction in refinance originations could slow issuance going forward, according to industry analysts. A total of $4.34 billion in non-agency jumbo MBS was issued in the second quarter of 2013, with deals from five issuers ... [Includes one data chart]

As issuance of non-agency jumbo mortgage-backed securities has increased in recent quarters and conforming jumbo MBS issuance has remained relatively flat, the non-agency sector has started to account for a larger share of jumbo mortgage securitization. A total of $15.07 billion in jumbo MBS – mortgages with balances above the traditional conforming loan limit of $417,000 – was issued in the second quarter of 2013, according to the Inside Mortgage Finance MBS Database ... [Includes one data chart]

A subsidiary of Nomura Holdings is working on issuing a non-agency jumbo mortgage-backed security comprised solely of originations by First Republic Bank. The pending deal is set to receive a AAA rating from Kroll Bond Rating Agency, while Fitch Ratings warned that the proposed credit enhancement levels on the deal are too low for a AAA rating. The $440.08 million NRP Mortgage Trust 2013-1 is structured to include credit enhancement of 7.60 percent on the tranche with a AAA rating from KBRA. Fitch said ...

Beginning Jan. 1, capital requirements for bank holdings of certain non-agency mortgage-backed securities will begin to increase. The changes were included in the Basel III reforms approved by federal banking regulators last week. The Basel III final rule includes the simplified supervisory formula approach in lieu of the use of credit ratings to determine capital requirements for holdings of non-agency MBS. The SSFA relies on the 90+ delinquency rate, risk weights of the underlying exposures ...

Investors in new non-agency jumbo mortgage-backed securities are particularly concerned about representations and warranties regarding mortgage underwriting. Investors at a recent roundtable hosted by Standard & Poor’s stressed that particular risks should be borne by the party with the best information. “Since originators and arrangers are in a better position to ascertain the true quality of the loans, [investors said] reps and warrants should serve to protect investors from risks arising from ...

Correspondent lenders working to sell originations to Redwood Trust are particularly comfortable with how the jumbo conduit handles appraisals. Redwood offers validation of appraisal values early in the underwriting process, providing lenders with some assurance that disagreements regarding an appraised value won’t prevent a delivery to Redwood. During a recent webinar hosted by Inside Mortgage Finance Publications, Jonathan Groesbeck, a managing director at Redwood, said appraisal validation is one of ...

The New York State Department of Financial Services has directed FHA lenders to refrain from applying the FHA’s higher mortgage insurance premiums in calculating a loan’s annual percentage rate and fully indexed rates for 60 days to prevent loans from becoming “high cost” or subprime. At the same time, the department issued guidance to conventional lenders on how to interpret existing provisions in state banking law regarding subprime loans. Statutory changes were made in 2009 to prevent some loans from becoming “subprime,” as defined by state law. Spikes in mortgage interest rates in the past few weeks plus ...

A Wells Fargo securities trial is underway in Minnesota federal district court where jurors will decide whether the financial institution had misrepresented the safety and soundness of its securities lending program and lied to investors about the risks involved or whether the economic crisis was to blame for investor losses. The securities lending program (SLP) was marketed to large institutional investors, including pension funds. As part of the SLP, Wells Fargo held the participants’ securities in custodial accounts and loaned them temporarily to brokers. The brokers then posted cash collateral, which the bank invested until the securities were returned. Under agreements with SLP participants, Wells Fargo acted...

Participants in the non-agency mortgage-backed security market are concerned about the strength of the sector as interest rates and other pricing metrics have increased significantly in recent weeks. “When the 10-year Treasury rate started to rise recently and the mortgage interest rate spread out by 20 basis points, the non-agency MBS market spread out by 50 basis points,” said Lewis Ranieri, chairman of Ranieri Partners, at a forum hosted by the Bipartisan Policy Center last week. “And given there’s ...