Accounting for the FHAs single-family mortgage insurance program using the current methodology spelled out in the Federal Credit Reform Act or an alternative fair value approach will yield opposing results that could mean "savings" or potentially significant losses for the government and taxpayers, according to the Congressional Budget Office. In a recent study, the CBO estimated that, using the FCRA methodology, the FHA program would produce budgetary savings of $4.4 billion in fiscal year 2012. In contrast, a fair-value approach would result in ...

Consumer advocates called on Congress to extend national mortgage servicing standards to all servicers, including those of government-insured home loans. Testifying before the Senate Banking Subcommittee on Housing, Transportation and Community Development recently, Diane Thompson, of counsel to the National Consumer Law Center, said loans made by the FHA, the VA and the Rural Housing Services are generally aimed at ...

Narrowly defined "qualified residential mortgages" under risk-retention rules and anything less than an absolute "qualified mortgage" safe harbor can severely limit credit availability and ultimately hamper the return of non-agency securitization, warned Amherst Securities Group in a new report. Arguing that risk retention may not produce any net benefit, the Amherst report said that the proposed definition of a qualified residential mortgage is too restrictive and that it may result in less mortgage credit being available. The effect would be more detrimental if Congress decides to further limit the reach of both...

The securitization market requires less of a heavy handed approach from government and a softer touch in order to restore investor confidence and lure private capital back into the market, industry executives told senators on Capitol Hill this week. Witnesses testifying before the Senate Banking Subcommittee on Securities, Insurance and Investment said the state of the securitization market is uncertain, due to government subsidies crowding out budding private sector resurgence, as well as an overly broad, but ambiguous, interpretation of the Dodd-Frank Act by regulators. "The consequences of failing to attract sufficient private-sector capital to...

Everyone seems eager to see the private sector re-enter the MBS market, but it simply isn't ready or willing, and won't be for a very, very long time, according to experts in an American Securitization Forum seminar held this week. "From our perspective as an investor, one of the things that you really have to think about when you look at the mortgage market is what investors, big institutional investors, are interested in purchasing. The biggest thing in our mind is liquidity," said Nancy Handal, a managing director at Metropolitan Life Insurance Company. "We learned a ton as investors from the crisis in 2008," she continued...

Non-agency mortgage-backed security investors appear to be unwilling to support new non-agency MBS issuance until reforms are implemented for second-liens. Nancy Mueller Handal, a managing director at MetLife, said potential non-agency investors are looking for an alignment of issuer, investor and servicer interests. "A big piece of this comes down to the fact that servicers have been managing their second liens in portfolio to the detriment of the first lien," she said at a discussion this week hosted by the American Securitization Forum. Second liens became a major focus of a hearing on national servicing standards last week at...

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...

Can I afford this mortgage, and can I get a better deal somewhere else? Those are the two questions the Consumer Financial Protection Bureau wants borrowers to be able to answer when it is finished producing a new mortgage disclosure form that combines and would ultimately replace those required under the Truth in Lending Act and the Real Estate Settlement Procedures Act. This week, the CFPB released two alternate prototypes for industry and public review and comment, part of its Know Before You Owe project. The goal is to create a single, simpler form that makes the costs and risks of the loan clear and allows consumers to...

The Federal Deposit Insurance Corp. has sued two appraisal service providers for allegedly flawed appraisals on some 414 mortgage loans that caused millions of dollars in losses to the now-defunct Washington Mutual Bank. Separate complaints were filed May 9 in the U.S. District Court of Central California against CoreLogic, Inc. and LSI Appraisal, their parent companies and various affiliates for alleged gross negligence and multiple contract violations in connection with improper appraisals delivered to WaMu in 2006 through 2008. Out of the thousands of appraisals provided by the two companies to WaMu during the period, the FDIC claimed...