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...

Legislation filed in the House two weeks ago would require the Treasury Department to once again amend its agreement with Fannie Mae and Freddie Mac to allow the GSEs to pay down the billions of taxpayer dollars the companies received while in government conservatorship.Under the Let the GSEs Pay US Back Act of 2013, H.R. 2435, – sponsored by Rep. Michael Capuano, D-MA – the GSE senior preferred stock purchased by the Treasury would no longer accrue dividends, as is the current practice.

The Federal Reserve Board of Governors unanimously issued a revised Basel III final rule this week that abandons the proposed changes to the risk-weighting of residential mortgages, but presses ahead with the proposed new treatment of mortgage servicing rights. In backing off the proposed changes for residential mortgages, Fed officials cited community bank concerns about the complexity of calculating loan-to-value ratios under the proposed regime. They also emphasized concerns about the unknown interaction the proposed changes would have with other mortgage-related rulemakings confronting the industry, most notably the Consumer Financial Protection Bureau’s “qualified mortgage” standard as well as the qualified residential mortgage definition, which is still in development by federal regulators. “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 CFPB and the Federal Deposit Insurance Corp. recently released “Money Smart for Older Adults,” an instructor‐led training module designed to help senior citizens and their caregivers protect themselves from financial exploitation and make informed financial decisions. “Older Americans lose an estimated $2.9 billion annually to financial exploitation, and it’s estimated that for each case that is reported, 43 others go unrecognized,” the bureau said. “With 50 million older people in this country, and 10,000 more reaching...

The recent rapid rise in interest rates has some market participants talking about margin calls on MBS investors, but so far all the chatter appears to be speculative – although there still could be red ink out there, somewhere. At press time, the yield on the benchmark 10-year Treasury had stabilized at 2.54 percent. In mid-May the rate was 1.70 percent. That’s a run-up of 84 basis points. One secondary market official told...

Japan became the biggest overseas investor in U.S. MBS and ABS markets last year, moving past mainland China to head the ranking, according to final Treasury Department data. Japanese investors held $199.7 billion of U.S. MBS and ABS as of the midway point in 2012, the one time a year when Treasury releases detailed foreign holdings of U.S. long-term securities. That was up 21.3 percent from June 2011, when Japan held just $164.7 billion of MBS and ABS. The Japanese increased...[Includes one data chart]

Investors in vintage non-agency MBS could take $7.8 billion in losses due to previously undisclosed principal forbearance on top of the $1.0 billion in losses uncovered this month. However, a survey suggests that servicers don’t intend to pass the losses through to investors. The losses recognized in May were reported after Ocwen Financial took over servicing from Homeward Residential. Analysts warned that other servicing transfers could prompt similar losses. Bank of America Merrill Lynch said...

Republican and Democrat lawmakers in the Senate formally unveiled their ambitious plan to replace Fannie Mae and Freddie Mac with a new federal entity providing backstop guaranties for securities backed by high-quality conventional mortgages. Although they made a variety of changes to a “discussion draft” version of the legislation that has been widely circulated in recent weeks, the proposal still faces a huge hurdle in the House despite winning generally favorable reactions from industry groups. As it was introduced this week, S. 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013, would create...

Private MBS investors will likely see reduced competition from the Federal Reserve later this year if the central bank begins to slow down its purchases of agency MBS, but there is also likely to be a sharp drop in new MBS supply at the same time. The Federal Open Market Committee made no changes in its policy of adding $40 billion a month to its massive $1.165 trillion portfolio of agency MBS, in addition to reinvesting payments from its agency debt and MBS holdings. It also promised to closely monitor economic and financial developments and stands prepared to increase or decrease its MBS purchases. But Fed Chairman Ben Bernanke later indicated...[Includes two data charts]

Representatives of the structured finance industry are worried about the effect the Consumer Financial Protection Bureau’s ability-to-repay/qualified-mortgage rule will have on the revival of the non-agency MBS sector. One of their main concerns right now is that the further away a loan is from getting safe harbor protection as a qualified mortgage, the more legal uncertainty and higher costs there will be associated with it. Last week, analysts at Morningstar Credit Ratings LLC noted that the rule will allow a borrower in the first three years of the mortgage to bring legal action challenging whether the lender determined an ability to repay. If successful, the borrower can be entitled to up to three years of fees and finance charges, actual damages, and legal fees and costs, they said. Additionally, the borrower will be able...