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 ...

The Department of Veterans Affairs has urged holders and servicers of home loans with a VA guaranty to consider principal reduction when evaluating a distressed loan for possible modification. In a recent circular, the VA noted that it is not able to reimburse any principal reduction because a VA claim is payable only upon termination of a loan, and any forgiven amount is no longer part of the borrower’s mortgage debt. However, principal reduction in a loan modification may produce a higher expected return for a servicer than termination of the loan, the VA said. This is especially true when the sum of the ...

Two different groups holding Fannie Mae and Freddie Mac stock filed suit against the government this week claiming that the Treasury Department and the Federal Housing Finance Agency are illegally poaching the profits from Fannie Mae and Freddie Mac that should go to shareholders. The FHFA and Treasury illegally implemented the so-called sweep amendment last summer that altered Fannie’s and Freddie’s preferred stock purchase agreements, according to the suits. The amended agreement allows the government to seize nearly all the profits of the two government-sponsored enterprises. This is a direct violation of the 2008 conservatorship legislation, according to the lawsuit filed by hedge fund Perry Capital in the U.S. District Court for the District of Columbia. Less than two days later, Fairholme Capital Management filed...

More sales of mortgage servicing rights are expected as a result of final Basel III capital rules approved by U.S. bank regulators over the past week. As anticipated, the Federal Reserve and other agencies declared that mortgage servicing rights cannot exceed 10 percent of Tier 1 capital – or 15 percent when deferred tax assets are factored into the equation. As was originally proposed, any MSR amounts above 15 percent must be deducted from Tier 1 capital, and any amounts included in capital will carry a risk weight of 250 percent. “Mortgage servicing rights were not given...

Two insurance industry trade groups recently filed suit in federal district court to contest the Department of Housing and Urban Development’s final rule formalizing its “disparate impact” interpretation of the Fair Housing Act, which asserts that housing policies and practices can be deemed discriminatory not only through their intent but also by their effects. The rule, issued in early February, formally establishes the three-part burden-shifting test for determining when a practice with a discriminatory effect violates the Fair Housing Act. The American Insurance Association and the National Association of Mutual Insurance Companies, whose members sell homeowners insurance, challenged...

New MBS and ABS issuance slowed in the second quarter of 2013 as rising interest rates in June stalled the market’s momentum. A total of $495.4 billion in residential MBS and non-mortgage ABS were issued during the second quarter of 2013, according to a new Inside MBS & ABS market analysis. That was down 3.7 percent from the first quarter of the year, although total production during the first half of 2013 was still up 17.8 percent from the same period last year. June was...[Includes one data chart]

Credit Suisse and Shellpoint Partners decided to damn the torpedoes and issue a total of three non-agency jumbo MBS at the end of the second quarter of 2013 despite concerns about investor appetite. The Shellpoint MBS was a proof-of-concept affair, while at least one of the Credit Suisse deals appears to be aimed at unloading seasoned originations from one lender. The three deals totaled $1.10 billion. Analysts at Bank of America Merrill Lynch said...

Could rising interest rates and a shake-up in the repo market cause some real estate investment trusts that specialize in the MBS market to dump securities en masse? A new report from Fitch Ratings notes that repurchase agreements represent 90 percent of agency mortgage REIT liabilities. “In a deleveraging scenario, MBS investors reliant on repo borrowing may need to liquidate some of their holdings,” writes Fitch analyst Robert Grossman and his team. If that happens it might create what Fitch calls a “knock-on” effect for MBS valuations and the mortgage market in general. The cash provided via repo lines is...

Credit unions held a total of $107.1 billion of MBS in their portfolios at the end of the first quarter of 2013, according to a new Inside MBS & ABS analysis and ranking of call report data. That was up 4.9 percent from the previous period, a relatively strong increase in a market where the supply of MBS outstanding has barely budged and the Federal Reserve represents a huge competitor for new issuance. Compared to a year ago, credit union MBS holdings were up 10.9 percent, while the total MBS market actually declined by 1.4 percent. Credit unions for the most part have ignored...[Includes one data chart]

The Federal Reserve decided against instituting new mortgage risk weightings in issuing its Basel III final rule this week, a decision that will likely make it easier and cheaper for financial institutions to hold onto their legacy non-agency MBS and thereby reduce the pressure they may feel to deleverage their balance sheets. “In light of new regulations designed to improve the quality of mortgage underwriting as well as continued uncertainty regarding the aggregate impact of pending mortgage-related rulemakings, the draft final rule does not include the proposed risk weights and instead incorporates the risk weights for residential mortgages under the general risk-based capital rules, which assign a risk weight of either 50 percent (for most first-lien exposures) or 100 percent for other residential mortgage exposures,” the Fed said. That means...