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Inside MBS & ABS

September 29, 2011

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Depository Institutions Step Up MBS Investment In First Half of 2011; Fed to Reshape the Market

Banks, thrifts and credit unions expanded their stakes in the residential MBS market over the first half of 2011 as most other major investor classes pulled back from the market, according to a new analysis by Inside MBS & ABS. But the profile of the MBS investment community will likely continue to change as the Federal Reserve has opted to resume buying agency MBS in an effort to stimulate the economy by pushing long-term interest rates lower. While the result of resumed Fed MBS purchases is uncertain, the Federal Open Market Committee’s decision to reinvest payments on the Fed’s agency MBS back into...(Includes one data chart) Read More

Bid to Reform Servicer Compensation in Fannie/Freddie MBS Could Become Model for Non-Agency Market

A proposal from federal regulators to change servicer compensation on future Fannie Mae and Freddie Mac MBS to a fee-for-service model could also end up addressing a major investor beef about the non-agency MBS market: poor servicing of distressed loans and misaligned interests. The Federal Housing Finance Agency this week released a discussion paper outlining a radical change from an existing system that pays Fannie and Freddie servicers a minimum servicing fee regardless of the loan status. The proposed system features a low flat fee for handling performing loans with increased compensation for... Read More

Wall Street Considers Expanding TBA To High-LTV Agency Refinance Pools

Wall Street MBS insiders met this week to talk about making Fannie Mae and Freddie Mac MBS backed by high loan-to-value refinance mortgages eligible for the to-be-announced market. The Securities Industry and Financial Markets Association held a telephone conference call to discuss the issue, a SIFMA representative confirmed, but the group declined to provide any details. Mortgages with LTV ratios above 105 percent can be sold to Fannie Mae and Freddie Mac under the Home Affordable Refinance Program, but these loans must be pooled in separate MBS that are not eligible for the TBA market. HARP loans with...(Includes one data chart) Read More

Treasury Market Practices Group Limits Scope of Fail Charges Recommendation to Pass-Thru MBS

The Treasury Market Practices Group late last week clarified its recommended fails charge trading practice for agency MBS to limit the scope to pass-throughs, where fails are most likely to happen. “The agency debt and agency MBS trading practice has been updated to reflect the TMPG’s recommendation that a fails charge apply to agency pass-through MBS issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae,” the group said. The original recommendation was that the charge apply to agency MBS issued or backed by Fannie, Freddie and Ginnie Mae, which also issue most REMICs backed by agency pass-throughs. The TMPG has not... Read More

Share of Portfolio-Held Mortgage Loans Rose in 2010, Refinancing Comprises Bulk of Portfolio Lending

The share of mortgage loans that were held in portfolio rather than sold into the secondary market rose for the second consecutive year in 2010, but that may have more to do with the peculiarities of the rules for complying with the Home Mortgage Disclosure Act. A Federal Reserve analysis of the lastest HMDA data found that portfolio lending, especially involving owner-occupied refinance loans, has risen since the beginning of 2009 but is still far short of the levels portfolio lenders achieved in 2004 and 2005. Overall, originators held a total of 1.30 million mortgages in portfolio in 2010, with... Read More

Redwood Still Flying New Non-Agency MBS With Just One Rating, But That’s All It Takes

Redwood Trust issued its second non-agency MBS of the year this week with just one rating, a sign of dramatic change in the role of credit ratings in the market. During the heyday of the non-agency MBS market, very few public deals went to market without at least two ratings and some transactions were rated by all three of the top credit rating services. Standard & Poor’s was the market leader for years, but Fitch has had a virtual monopoly on the jumbo MBS sector, which totals just two deals so far this year. S&P has effectively taken to the sidelines in rating non-agency MBS backed by new mortgages, according to... Read More

SEC Formally Investigating Standard & Poor’s Over Delphinus CDO 2007-1 Rating. Who’s Next?

The Securities and Exchange Commission is considering launching a civil injunctive action against Standard & Poor’s Rating Services, alleging violations of federal securities laws with respect to the company’s ratings for a 2007 collateralized debt obligation. According to a Form 8-K filing this week by McGraw-Hill, the rating service’s parent, the federal agency is looking into S&P’s rating of Delphinus CDO 2007-1, which was to be mostly backed by non-agency residential MBS. “In connection with the contemplated action, the [SEC] staff may recommend that the commission seek civil money penalties, disgorgement of fees and... Read More

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