Competing special servicers Ocwen Financial and Walter Investment Management worked together this week to outbid Nationstar Mortgage to acquire Residential Capital’s mortgage servicing rights and origination platform at a bankruptcy auction. And Berkshire Hathaway won a separate auction for ResCap’s whole-loan portfolio. After approval by the bankruptcy court, Ocwen would handle 86.5 percent of the $374.0 billion ResCap MSRs with Walter acquiring $50.4 billion in Fannie Mae MSRs along with ResCap’s ...

Republicans in the House will approve a package of legislation to reform the government-sponsored enterprises next year, according to the chief of staff for Rep. David Schweikert, R-AZ. The Arizona lawmaker is also working on a bipartisan bill to establish a framework for the non-agency mortgage-backed security market. Speaking at the ABS East conference sponsored by Information Management Network this week in Miami, Matthew Tully, chief of staff for Schweikert, said GSE reform is a top agenda item for House ...

With the help of consumer advocates, five borrowers filed a class-action lawsuit last week against Morgan Stanley alleging racial discrimination tied to the issuance of subprime mortgage-backed securities. The case appears to be the first to connect securitization and racial discrimination and the first class-action by borrowers against an investment bank. “It literally is the first case of Main Street holding Wall Street accountable for the abuses that happened and the aftermath in the Great Recession,” ...

Two more funds started to exit the Public-Private Investment Program in the third quarter of 2012. Returns from the program – which largely focuses on investing in vintage non-agency mortgage-backed securities – remain strong and the Public-Private Investment Funds can manage their holdings for at least the next five years, but four of the original nine PPIFs have now exited the PPIP. In July, RLJ Western terminated its PPIF’s investment period four months ahead of schedule. The notification occurred shortly after ...

Prices on vintage non-agency mortgage-backed securities have increased significantly in the past three months and are expected to remain elevated. The strong returns are being driven by improvements in home prices and loan performance along with decreased supply. “The numerous positive developments in the non-agency space should continue to benefit the non-agency market in the fourth quarter,” said analysts at Bank of America Merrill Lynch. “We see the sector as fundamentally undervalued at current levels.” ...

No matter how bad mortgage market watchers believe this week’s headline-grabbing lawsuit against Morgan Stanley by the American Civil Liberties Union is, it could be much, much worse for a swath of new potential defendants throughout the securitization pipeline and for the industry as a whole, according to one legal expert. The ACLU headed a group that filed suit in the U.S. District Court in New York on behalf of five Detroit residents. The lawsuit claims that Morgan Stanley pushed a unit of now-bankrupt New Century Financial Corp. to target minority borrowers for high-risk subprime mortgages. Between 2004 and 2007, Morgan Stanley “ramped up”...

Current efforts by numerous firms to establish a non-agency market for real estate owned rental securitizations are worthwhile, based on investor interest in the emerging sector. Investors are skeptical of REO rental assets but also willing to participate in the market, even without AAA ratings. “We look forward to being part of the discussions with issuers, investors and operators,” Youriy Koudinov, a director at TIAA-CREF, said this week during a seminar hosted by the American Securitization Forum. “As prudent ...

Investors in vintage non-agency MBS have seen strong returns in recent months, particularly in August. Industry analysts suggest that returns are likely to remain elevated as there are few remaining risks for non-agency MBS and supply is limited. “Despite increased profit taking on this year’s impressive performance, bonds continue to trade well,” according to analysts at Bank of America Merrill Lynch. “While demand for non-agency bonds will likely grow as home prices recover, it will not be met with more new supply as is seen in the broader high-yield bond universe. This is a very strong backdrop for further price appreciation.” From the beginning of June through the end of September, pricing on the ABX index that tracks subprime MBS has...

Interest shortfalls on non-agency MBS have increased significantly in the past five months, according to research by Morningstar Credit Ratings. The servicing-related issue causes investors to absorb unpredictable losses and could result in downgrades of non-agency MBS. A sample of 2,858 non-agency MBS deals (21,727 tranches) examined by Morningstar in May and again in August showed a 38.0 percent increase in the number of deals with interest shortfalls. Some 18.6 percent of non-agency MBS deals examined by Morningstar for the August remittance period experienced a shortfall in at least one tranche. Shortfalls increased overall even though 21.8 percent of the shortfalls seen in March had...

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]