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Inside MBS & ABS

May 20, 2011

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Banks Pony Up to MBS Market as Agencies Begin to Make More Room

The federal government's gradual pullback as an investor in the MBS market is beginning to open more space for commercial banks and other private investors. Commercial banks increased their investment in residential MBS by a solid 6.5 percent during the first quarter, pushing their combined holdings to a record $1.311 trillion. That represented about 20.0 percent of an overall MBS market that has been shrinking since the third quarter of 2009. Bank holdings of residential MBS were up 14.2 percent from the first quarter of last year. Through the U.S. Treasury, the Federal Reserve and the retained holdings of Fannie Mae and Freddie Mac, the federal government held... [Includes two data charts] Read More

SEC Proposes to Make Credit Ratings More Transparent, Accountable and Standardized

The Securities and Exchange Commission this week unanimously approved a proposed rule intended to strengthen and improve the transparency of credit ratings via new requirements for the rating agencies themselves, as well as third-party due diligence providers, underwriters and issuers. The new proposed rule would implement provisions in the Dodd-Frank Act, in which Congress noted the importance of credit ratings, said SEC Chairman Mary Schapiro. "It also noted that ratings that were applied to structured financial products proved inaccurate – and contributed significantly to the mismanagement of risks by... Read More

Narrow, Restrictive QRM Rule, Limited QM Safe Harbor Will Crimp Credit Availability

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... Read More

House GOP Tees Up Second Round of Bills To Further Corral Fannie and Freddie

Republican members of the House Financial Services Committee are warming up another set of bills designed to "tie the hands" of Fannie Mae and Freddie Mac. Unveiled last week, the seven bills affecting the operations of the government-sponsored enterprises while they remain in conservatorship will be discussed during a hearing next week in the House Financial Services Subcommittee on Capital Markets and GSEs. "These seven bills were carefully designed to tie the hands of Fannie and Freddie so that they are no longer a drag on American taxpayers, a threat to our economic security and an impediment to private market growth and... Read More

Fed, Experts Delve into Improving Legal Framework Governing the Transfer of Notes and Mortgages

Staff at the Federal Reserve Bank of New York and other legal professionals are scrutinizing the fundamental questions the foreclosure crisis has raised about the adequacy of the legal framework for modern mortgage note transactions, especially when it comes to transferring and enforcing notes and mortgages, and how best to resolve them. The role of the Mortgage Electronic Registration System is a part of the discussion. To date, they are relying upon a number of issues that have been identified in a draft discussion document prepared recently by the Permanent Editorial Board of the Uniform Commercial Code, in conjunction with... Read More

Regulatory Outlook for Securitization Uncertain, Industry Asks for Mulligan on Risk Retention

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... Read More

Government Wants to Shrink Its Role in the Market, But Investors Still Doubt Readiness of Non-Agency

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... Read More

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