An increasing number of credit unions and other lenders have recently started offering a mortgage that allows borrowers to adjust their interest rates as frequently as every 120 days. While many lenders have avoided alternative mortgages since the collapse of the non-agency market, credit unions have not shied away from offering innovative products. This week, for the first time, a HarmonyLoan borrower executed an interest rate reset without the expense and requirements of the traditional refinancing process. The borrower took out ...

Performance concerns prompted Moody’s Investors Service to downgrade the servicer quality ratings of two non-agency servicers recently and place a third servicer’s ratings on watch for possible downgrade. Last week, Moody’s downgraded the servicer quality ratings of JPMorgan Chase Bank and Chase Home Finance to SQ2 from SQ1 for subprime and prime loans. The rating scale ranges from SQ1 (strong) to SQ5 (weak). The downgrades were mainly due to the deterioration of the company’s collection metrics relative to some of its peers, a deterioration in ...

Facing a growing coalition of dissatisfied non-agency mortgage-backed security investors, Bank of America announced this week that it plans to settle a large portion of its non-agency MBS claims related to buybacks and servicing. The action sets a precedent for the sector, making settlements with other non-agency MBS issuers more likely. “Bank of America has charted...[Includes one graph]

The legacy of toxic subprime and Alt A MBS from Countrywide Financial continued to spread last week, with a California appeals court deciding to allow a class action involving a number of pension funds and other institutional investors against the lender to proceed. The plaintiffs allege that Countrywide and a number of its subsidiaries, officers and U.S. investment banks violated the Securities Act of 1933 by making materially false and misleading statements in over 450 prospectus supplements relating to the issuance of more than $300 billion in subprime and Alt A securities. Specifically, plaintiffs allege the defendants misrepresented the quality of...

Redwood Trust plans to issue two more jumbo mortgage-backed securities this year, the real-estate investment trust announced this month. Martin Hughes, president and CEO of the firm, said officials hope to issue a total of $800 million to $1.0 billion in jumbo MBS in 2011, including the $290.0 million security issued earlier this year. Officials at the REIT said they hope to issue their next jumbo security in the third quarter. At the end of April, Redwood had $87.0 million in loans purchased and held on balance sheet for future securitization along with a $200.0 million pipeline. Redwood is seeing strong demand from correspondent lenders looking to...

Two Harbors Investment Corp. announced this week that it plans to issue a $250.0 million jumbo non-agency mortgage-backed security this year. "We believe we can create mortgage credit investments at attractive yields resulting from high-quality loan origination and securitization while further extending the runway for the non-agency allocation in our portfolio," said Thomas Siering, president and CEO of Two Harbors, a real estate investment trust. He said Two Harbors took its first step toward setting up a securitization issuance program by partnering with Barclays Bank this week to close on a $100 million mortgage loan warehouse facility, subject to... [Includes one graph]

New due-diligence rules will likely result in increased costs for issuers of non-agency mortgage-backed securities and increased disclosures for investors. Due diligence firms are also divided on whether to assume the "expert liability" required by the Securities and Exchange Commission regarding due diligence performed on MBS. Vicki Beal, a senior vice president at Clayton Holdings, said Clayton – a leading MBS due diligence provider – would likely be willing to take on the expert liability requirements. However, she said Clayton’s assumption of the liability would require MBS issuers to pay more for Clayton's services. The SEC issued...

Industry participants warn that federal regulators' recently proposed definition for qualified residential mortgages is too stringent and will unnecessarily limit lending to prime jumbo borrowers. If the rule is adopted as proposed, many warn that issuance of non-agency mortgage-backed securities will be limited or non-existent. "While the rules do a good job of addressing and deterring abuses of subprime securitization structures, they are overly and unnecessarily harsh when applied to prime securitization structures," said Martin Hughes, president and CEO of Redwood Trust. Chris Flanagan, a managing director at Bank of America Merrill Lynch, added that...

With the flow of new jumbo mortgage securitizations still running at a trickle, the non-agency MBS market remains dominated by resecuritization deals that face new regulatory hurdles ahead. New issuance of non-agency MBS dropped...[Includes four data charts]

Risk-retention requirements proposed by federal regulators last week strongly favor the government-sponsored enterprises over non-agency securitization, according to industry analysts. The pristine mortgages in Redwood Trust’s recent jumbo securitization would not completely meet the standards and the vast majority of... [Includes one graph]