Banks and thrifts saw another drop in their MBS holdings in the first quarter of 2013 despite holding their own against the Federal Reserve’s voracious appetite for agency MBS. A new Inside MBS & ABS analysis of bank and thrift call reports reveals that industry investment in residential MBS fell 1.1 percent during the first quarter of 2013 to $1.562 trillion. That was down 4.4 percent from the record $1.634 trillion of MBS held in portfolio by banks and thrifts at the end of the first quarter of last year. Banks reported...[Includes two data charts]

Even as industry chatter increases about an effort to extend the eligibility date of the Home Affordable Refinance Program, analysts speculate that more HARP may be too much of a good thing for the mortgage market. Analysts at Bank of America Merrill Lynch and Keefe, Bruyette & Woods cite evidence of a “creeping goal line” to move back by 12 months the June 1, 2009, cut-off date for HARP eligibility. KBW cites a Saturday morning address by President Obama earlier this month on the subject of refinance. “While he did not specifically mention extending HARP, we think an announcement could be coming over the next few weeks to extend the eligibility back one year,” said KBW. More telling, said BAML, is...

The Federal Reserve’s MBS purchase party isn’t over – yet – but it looks like the nation’s central bank is getting nearer to the last call. Late last week, the Wall Street Journal reported that officials at the nation’s central bank have developed a strategy for dialing back their unprecedented level of support of the housing market. The plan involves reducing the amount of bonds the Fed buys “in careful and potentially halting steps,” the WSJ said, with the purchases varying on the read officials have of the job market and of inflation. And although the timing of the Fed’s wind-down is...

Exactly one year after it filed for bankruptcy, Residential Capital announced this week it has entered into a “comprehensive plan support agreement” with its parent, Ally Financial, and ResCap’s creditors, who say they are owed some $25 billion in mortgage liabilities. The plan gets Ally out from under the threat of billions of dollars in lawsuits by settling all existing and potential claims between Ally and ResCap and all potential claims held by third parties related to ResCap that could be brought against Ally and subsidiaries that are not Chapter 11 debtors. The settlement, which is subject to approval by a federal bankruptcy court in Manhattan, fully releases...

Changes to the FHA’s mortgage insurance premium cancellation policy, which take effect on June 3, could ultimately cause some FHA loans closed after the effective date to become a “higher-priced mortgage loan” that no investor would want to purchase, lenders warned. Eliminating the MIP cancellation and requiring insurance to be kept for the life of the mortgage loan will raise the annual percentage rate 150 basis points above the average prime offer rate (APOR) index. This will trigger a higher-priced mortgage loan (HPML) designation for some ...

Over the past few weeks, speculators have been driving up the price of Fannie Mae and Freddie Mac common stock and “trust” preferred shares in the hope of a payoff somewhere down the line. But according to interviews conducted by Inside Mortgage Finance, the only payoff might come if they can find someone else willing to pay more than they did for stock that is considered virtually worthless. Industry lobbyists, former government-sponsored enterprise executives and some investors say...

Bank of America and MBIA announced a settlement this week of a long-running dispute regarding representations and warranties on mortgages securitized by Countrywide Financial. The settlement benefits non-agency MBS wrapped by MBIA, according to industry analysts. The settlement applies to all outstanding rep and warrant claims and all other claims between the bank and bond guarantor. BofA agreed to pay MBIA approximately $1.6 billion in cash and remit to MBIA all of the outstanding notes in the firm that BofA acquired in December. BofA also will terminate...

Fannie Mae and Freddie Mac this week reported a combined $63.3 billion in net income during the first quarter of 2013, which represents a huge dividend to taxpayers on the total $189.4 billion capital infusion they received since going into conservatorship. Together, the two government-sponsored enterprises will have paid $131.6 billion to the Treasury by the end of the second quarter, when the government “sweep” of excess net worth takes place. Under the terms of their bailout, the GSEs never pay down their Treasury draws, regardless of how much they pay in preferred stock dividends or net-worth sweeps. But Fannie and Freddie are...

There were no real surprises this week from the Federal Open Market Committee, which announced it plans to continue purchasing additional agency MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. But observers continue to contemplate the Fed’s eventual exit strategy and how it will affect the markets. “The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency MBS in agency MBS and of rolling over maturing Treasury securities at auction,” the FOMC said in what is becoming standard, boilerplate language. “Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.” Also, the committee plans...

Federal regulators said they will collectively work with Congress to reduce the agency market share of MBS issuance. The members of the Financial Stability Oversight Council said completion of the qualified-residential mortgage rule will also help increase non-agency activity. “The council recommends that the Treasury Department, the Department of Housing and Urban Development, and the Federal Housing Finance Agency continue to work with Congress and other stakeholders to develop and implement a broad plan to reform the housing finance system,” the FSOC said in its 2013 annual report, released late last week. Tobias Adrian, a vice president at the Federal Reserve Bank of New York and contributor to the report, said...