The Treasury Department should not bail out the GSEs’ subordinated debt again, according to Alex Pollock, senior fellow at the R Street Institute. He criticized the Treasury’s decision to pay off $13.5 billion in subordinate debt at the start of the conservatorship nine years ago and said that it created a lack of market discipline. “Instead of experiencing losses to which subordinated lenders can be exposed when the borrower fails, they got every penny of scheduled payments on time,” he said, calling the structural reason for bailing out the subordinated debt an “unusual occurrence.” The former head of the Federal Home Loan Bank of Chicago noted that the role of subordinated debt is...

Investors in Fannie Mae and Freddie Mac continue to grow weary of the drawn out discovery process in shareholder lawsuits and recently filed another motion in hopes of expediting things. Fairholme Funds attorneys filed a motion last week asking to view about 1,500 government documents in a lawsuit challenging the government’s net-worth sweep of profits at Fannie and Freddie. In the new motion, the Fairholme attorneys asked the Federal Claims Court to use the “quick peek” procedure for some documents dating back to May 2012. These are among the many documents the plaintiffs say the government is still hoping to keep secret under the deliberative process and bank examination privileges.

Commercial banks and savings institutions have been steadily adding to their residential MBS portfolios, but they show significantly less interest in the non-mortgage ABS market. Total bank investment in non-mortgage ABS sank again in the second quarter, dropping by $5.05 billion from the end of March to $118.38 billion. Compared to a year ago, bank ABS holdings were down 9.6 percent and they’ve been in steady decline since the end of 2013. It’s...[Includes two data tables]

Real estate investment trusts that invest in MBS and other mortgage-related assets are having a field day this year, raising billions of dollars in new capital while seeing their share prices increase across the board. Moreover, according to an analysis by Inside MBS & ABS, several top-ranked REITs are now trading much closer to their 52-week highs than their lows while maintaining hefty dividend payments to their shareholders. Annaly Capital Management, for example, the largest holder of agency MBS at $75.2 billion, is...

Even though indications of stress in the U.S. auto market are proliferating, risks in the auto loan ABS sector are still under control and investors are protected by healthy levels of credit enhancement, according to industry analysts. “Despite late-cycle indicators continuing to garner headlines – softer used-car pricing, rising inventories, weakening headline seasonally adjusted annual sales, and rising loan losses – we remain comfortable with auto loan ABS fundamentals,” according to a new report from Kroll Bond Rating Agency. KBRA did concede...

Federal banking regulators announced this week that capital requirements set to take effect in January for all but the biggest banks would be suspended under a proposed rule. The proposal applies to Basel III capital requirements for mortgage servicing rights, among other items. The regulators said they are developing a proposal that would simplify capital rules to reduce regulatory burden, particularly for community banks. The proposed suspension generally applies to banks with less than $250 billion in total assets. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., said...

The Consumer Financial Protection Bureau has begun receiving public comments in response to its proposal to close the so-called black hole in its integrated disclosure rule under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Interviews this week found that top experts dealing with the issue are pleased the bureau is addressing the problem, which is among the most significant issues related to the new disclosure regime. “Although the ‘black hole’ is highly technical, the impacts on lenders are significant,” noted former CFPB official Benjamin Olson, now a partner with the BuckleySandler law firm in Washington, DC. He noted...

The Federal Financial Institutions Examination Council this week issued new examiner transaction testing guidelines for all financial institutions that report under the Home Mortgage Disclosure Act. The rules will apply to the examination of HMDA data collected starting in 2018 and reported starting in 2019. The guidelines eliminate...

The Office of the Comptroller of the Currency this week issued guidance to banks regarding originations of loans with loan-to-value ratios of 100 percent or more in distressed communities marked for revitalization. The guidance is in support of banks’ attempt to revive neighborhoods that have suffered an economic downturn through programs that offer high-LTV financing for home purchases or for purchases and rehabilitation of residential properties. Specifically, the guidance provides...

The average daily trading volume in agency MBS fell to just $200.5 billion in July, the weakest reading of the year, according to the Securities Industry and Financial Markets Association. Compared to the prior month, MBS trading fell by 4.5 percent. The strongest month of the year came in January at $229.8 billion. In general, a lower reading on average daily trading volume means...