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Inside MBS & ABS

May 18, 2012

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Banks Continue Stocking Up on MBS, Largest Institutions Account for Most of the Increase

Banks and thrifts added some $67.2 billion in residential MBS to their investment portfolios during the first quarter of 2012, according to a new Inside MBS & ABS ranking and analysis. The increase amounted to a 4.3 percent gain from bank and thrift MBS holdings at the end of 2011, and raised the industry’s total investment to a record $1.634 trillion. It marked the first time since 2004 that banks and thrifts owned more than a quarter of the MBS market. The biggest increase was in holdings of agency pass-through securities, which rose 6.2 percent from the fourth quarter to $974.4...(Includes two data charts) Read More

Residential Capital Reaches $8.7 Billion Settlement With MBS Investors as Part of Bankruptcy Plan

Ally Financial negotiated an $8.7 billion settlement with investors in non-agency MBS issued by Residential Capital before putting the company, one of the pioneers in the securitization of jumbo, Alt A and subprime mortgages, into bankruptcy. Long before ResCap’s bankruptcy filing early this week, trustees for outstanding non-agency MBS had already been instructed by 17 investors to sue Ally Financial for compensation over alleged violations of ResCap representations and warranties. The deal was reached shortly before the filings, according to a source close to the matter. Ally said that some 290 MBS trusts... Read More

SIFMA Concerned FINRA Proposal Could Harm Market Participant Confidentiality

A proposal from the Financial Industry Regulatory Authority to begin disseminating data for agency MBS traded as specified pools could compromise the confidentiality of market participants and discourage them from future participation, according to the Securities Industry and Financial Markets Association. The FINRA wants to implement shorter reporting timeframes for MBS-SP transactions (initially two hours, then one hour), as well as real-time dissemination of trade information. Volume information would be capped at $10 million. Trades above that amount would be displayed as “10+.” “Our dealer and... Read More

Can Risk-Transfer Products Attract Private Capital Back to U.S. Residential Mortgages?

The government overseer of Fannie Mae and Freddie Mac wants to help trim the footprint of the two government-sponsored enterprises by selling credit risk to private investors, but a top public policy analyst questions how effective such efforts will be in bringing private capital back to residential mortgage markets. “The basic business model of credit-risk insurance doesn’t just make sense,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a think-tank in Washington, DC. “Because of the damage done in the run-up to the crisis, traditional insurers are at great risk of being... Read More

Fitch Downgrades WaMu Covered Bond Program, Investor Demand in U.S. Continues to Expand

This week, Fitch Ratings downgraded Washington Mutual’s covered bonds to ‘AA-’ from ‘AA’ and placed them on rating watch negative, after last week’s downgrade of the issuer default rating of the program sponsor, JPMorgan Chase Bank. That rating action followed JPMorgan Chase’s disclosure last week of a $2 billion trading loss on its synthetic credit positions in its chief investment office. The positions were intended to hedge JPM's overall credit exposure, particularly during periods of credit stress. That loss estimate has since grown to $3 billion, it was reported this week. The JPMorgan... Read More

As Investors Enter REO-to-Rental Bidding Process, S&P Suggests Consideration of REO Securitization

Converting real estate owned properties to rental units is still in its infancy but it could be a compelling asset type for investors. If securitized, it could provide a much-needed boost to the real estate market, according to Standard & Poor’s. In a recent analysis, S&P suggested taking the government’s REO-to-rent pilot program a step further and consider securitizing the rental streams from a pool of underlying REO assets, which could potentially provide a steady cash flow to back securitization transactions. Proceeds from the eventual sale of the properties could also be incorporated into the cash... Read More

Federal Regulators Defend to House Committee Necessity of ‘Neither-Admit-Nor-Deny’ Liability Settlement Policy

A panel of federal regulators told members of the House Financial Services Committee this week that enforcement of securities violations would be greatly hampered if the government was compelled to seek admissions of wrongdoing or liability as a condition of settlement. Committee Chairman Spencer Bachus, R-AL, said the purpose of the hearing was to examine the settlement practices of federal financial regulators, in particular the Securities and Exchange Commission. The SEC has come under public scrutiny after a federal judge last fall rejected the terms of an SEC settlement in lieu of trial that... Read More

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