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Inside MBS & ABS

April 25, 2013

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Non-Agency Participants Seek New Standards In Addition to Reform of Fannie and Freddie

“We need the light hand of government to set standards and systems for the market to move forward and private capital to return,” said Chris Katopis, executive director of the Association of Mortgage Investors, in testifying at a hearing this week in the House Financial Services Committee. While members of the committee appear to be nowhere near agreement on how to resolve the ongoing conservatorships of Fannie Mae and Freddie Mac – or how they might be replaced – lawmakers, non-agency MBS issuers and investors all agreed on the need for new standards to increase non-agency MBS activity. The AMI called... Read More

Non-Agency MBS ‘Showing New Signs of Life’ with Another Redwood Deal, Expected Bank Issuance

“The private-label market is showing new signs of life,” according to Standard & Poor’s, which predicted that banks are likely to increase their securitization of jumbo mortgages. In a report released late last week, S&P projected $14 billion in non-agency jumbo MBS in 2013. Redwood alone set a goal of issuing $7 billion in non-agency MBS this year and is on pace to exceed that volume, helped by a pending $425 million deal, its sixth of the year. PennyMac Mortgage Investment Trust is also aiming to issue a non-agency jumbo MBS in the Redwood mold in the third quarter of 2013. JPMorgan Chase and EverBank Financial issued...[Includes one data chart] Read More

Eminent Domain is Back, Advancing in a Handful of Local Communities, And Challenged on Capitol Hill

Many people in the mortgage lending and securitization sectors thought the controversial eminent domain plan pushed by Mortgage Resolution Partners was graveyard dead after suffering a few high-profile defeats in various locales throughout the country. They were wrong. Now, a number of interested industry parties are back on the defensive, trying to convince city officials in Richmond, CA, to abandon a new advisory arrangement with MRP and to discourage local government representatives in North Las Vegas, NV, to not reach a similar agreement with the firm. In both instances, the plan being advanced by MRP would involve... Read More

Proposed Changes to NAIC Modeling Could Lead to Increased Expected Losses, Sales of Non-Agency MBS

The National Association of Insurance Commissioners recently proposed changes to modeling values of insurance company holdings of non-agency MBS and commercial MBS. The proposal could increase loss forecasts and prompt some sales of the securities, according to analysts. The NAIC proposed using the Treasury strip curve as the discount rate in determining the net-present value of expected loss for modeled securities, as opposed to using each security’s coupon rate to determine expected losses. The standard-setting group governed by state insurance regulators noted that the Treasury strip curve is a risk-free curve. “Using a consistent risk-free rate for all modeled securities in calculating the expected loss reflects... Read More

Commercial Mortgage Securitization Streaks to Post-Crash Record in Early 2013 as the Non-Agency Sector Heats Up

Securitization of income-property mortgages jumped 23.0 percent from already strong levels during the first three months of 2013, according to a new Inside MBS & ABS market analysis. A total of $47.61 billion of commercial MBS were issued during the first quarter, including a variety of non-agency deals as well as multifamily MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. That was the strongest level since structured finance markets tanked in 2008. The previous post-crash high was...[Includes one data chart] Read More

A Publicly Traded Mutual Fund is Buying Whole Loans, But Will it Securitize Them?

The Vertical Capital Income Fund is a publicly traded mutual fund whose stated goal is to buy whole loans from banks and nonbanks, providing an attractive yield to its investors. But will it ever get around to securitizing its holdings? For now, the answer to that question appears to be no, but it’s something the fund is looking into. “Let’s put it this way; we’ve discussed the possibility,” said Richard Mason, vice president of secondary marketing for the company. Part of Vertical’s problem is... Read More

S&P Accuses U.S. of ‘Overreach’ in Government’s Ratings Fraud Lawsuit; Appeals Court Sides With AIG Over BofA

Standard & Poor’s this week deployed legal countermeasures against the federal government by asking a judge to dismiss a civil fraud lawsuit brought against the rating agency, slamming the litigation as an “overreach.” In February, the Justice Department filed a $5.0 billion lawsuit against S&P accusing it of knowingly inflating its ratings on residential MBS and collateralized debt obligations to boost its revenue and market share in the years leading up to the 2008 financial crisis. The filing in California federal court by S&P’s parent company, McGraw-Hill Co., says... Read More

Moody’s Developing a New Approach to Addressing Tail Risk in RMBS as Market Recovery Continues

Moody’s Investors Service has come up with a monitoring approach to evaluating “tail risk” in non-agency MBS that pay scheduled principal and prepayments to the securities on a pro-rata basis and assessing the adequacy of the credit enhancement available to the rated securities. Tail risk is what might be described as the “end of life” risk of a disproportionately large loss (based on current balance of the pool) on the underlying pool at the end of a transaction’s term when few loans remain in the pool and credit enhancements, although high in percentage terms, may be very low in dollar terms. The proposed change in approach at Moody’s will mostly affect... Read More

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