The Mortgage Insurance Companies of America urged U.S. banking regulators not to exclude private mortgage insurance as they consider the proposed Basel III risk-based capital framework for the nation’s banks. Commenting on the proposed rules this week, MICA urged regulators to acknowledge the crucial role private mortgage insurance plays in the single-family residential market and recognize it in the proposed capital rules “with a reduced capital charge.” “Exclusion of private mortgage insurance in the proposed rules is a departure from accepted banking practices and would have ‘unintended adverse consequences on housing finance and the broader U.S. economy,’” said Suzanne Hutchinson, MICA executive vice president. Under the proposed U.S. implementation of Basel III, conventional residential mortgages with loan-to-value ratios in excess of 80 percent, regardless of the presence of private mortgage insurance, could trigger...

Recent efforts by the government-sponsored enterprises and the Federal Housing Finance Agency to offer clarity and consistency about repurchase demands may or may not bear fruit as neither agency officials nor industry observers can speak confidently as to its ultimate effectiveness. According to participants at an Inside Mortgage Finance webinar this week, the GSE representation and warranty framework unveiled by the FHFA last month and the GSEs’ new quality control guidelines announced last week are steps in the right direction but there are a lot of moving parts to take into account. “We tried the best we could to address...

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”...

The Commodity Futures Trading Commission late last week issued a temporary exemption for “securitization vehicles,” including MBS, from burdensome rules required by the Dodd-Frank Act regarding commodity pools. The exemption from rules for swaps lasts through the end of the year and was detailed in a series of no-action letters. Industry participants including the American Securitization Forum and the Securities Industry and Financial Markets Association requested the no-action letter from the CFTC for rules that went into effect on Oct. 12. The groups warned that applying the new regulation to MBS with simple interest rate swaps would harm the market for new issuance as well as outstanding securities. “This legal and regulatory uncertainty could have...

Mortgage real estate investment trusts that invest in MBS are likely to see their profitability reduced in coming quarters, largely as a result of the competition they’re facing from the Federal Reserve for assets to buy. Since the Fed’s Sept. 13 announcement that it would snap up an additional $40 billion of agency MBS a month as part of its latest quantitative easing, yields have dropped and spreads have narrowed, and that’s cutting into the earnings and dividends of mortgage REITs. Paul Miller, a securities analyst at FBR Capital Markets, agrees...

Advocates for GSE reform say recent actions by the Treasury and the Federal Housing Finance Agency have made it more important than ever for policymakers to start moving Fannie Mae and Freddie Mac away from government support or risk seeing the two enterprises enveloped forever within the federal budget. Two former Bush administration Treasury officials made their case this week in a Washington Post opinion piece, citing the government’s recent sale of stock in insurance giant American International Group to recoup the bailout billions Uncle Sam floated the company during the financial crisis as an admittedly inexact blueprint for Congress and the White House to follow to get the feds out of Fannie and Freddie.

The Federal Housing Finance Agency has proposed a rule to acquire explicit discretionary authority to require Fannie Mae, Freddie Mac or any of the 12 Federal Home Loan Banks to undergo a stress test every year, no matter how much the GSEs have in consolidated assets. The proposed rule, published in the Oct. 5 Federal Register, would implement a part of the Dodd-Frank Act, which requires certain financial companies with consolidated assets of more than $10 billion, and which are regulated by a primary federal financial regulatory agency, to conduct an annual stress test.

There is vast room for improvement in how Fannie Mae and Freddie Mac manage their deficiency collections following foreclosure but it is the GSEs’ regulator that should provide more “guidance” about how to effectively pursue and collect from strategic defaulters, concluded the Federal Housing Finance Agency’s official watchdog this week.The FHFA Office of Inspector General’s latest audit found that in 2011, Fannie’s and Freddie’s vendors pursued 35,231 deficiency accounts, with a combined value of about $2.1 billion. Of this amount, vendors recouped some $4.7 million, a dismal recovery rate of 0.22 percent.

The legal backlog of cases pending against the GSEs and former company officials got a little shorter following the recent dismissal of two separate federal lawsuits against three defendants. A federal judge in Washington this week dismissed a long-simmering class-action lawsuit against Fannie Mae’s former Chief Financial Officer Timothy Howard brought by investors hoping to recover damages.Two Ohio pension funds – the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, filed suit in 2004 related to a $6.3 billion overstatement of earnings against Fannie and three former GSE executives, including CEO Franklin Raines.

A federal appeals court has refused to suspend proceedings in the case brought by the Federal Housing Finance Agency against one of the non-agency mortgage-backed securities issuers and underwriters for allegedly misrepresenting the deals that were sold to Fannie Mae and Freddie Mac. A three-judge panel of the Second Circuit Court of Appeals earlier this month made short work of rejecting the motion by UBS Americas to put the suit on hold while the appeals court hears UBS’ appeal of a lower court’s decision not to dismiss the case. “Upon due consideration, it is hereby ordered the motion is denied,” the judges ruled in their terse one-sentence Oct. 1 order.