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Inside Nonconforming Markets

April 16, 2010

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SEC-Proposed Mandatory Risk-Retention for Non-Agency MBS Opposed by Many Investors

Regulators and Democrats in Congress continue to push for mandatory risk-retention on mortgage-backed securities, but mortgage investors largely prefer enhanced representations and warranties to required risk-retention. Last week, the Securities and Exchange Commission proposed changes to Regulation AB, including a 5 percent risk-retention requirement for non-agency MBS. The SEC’s proposal... Read More

Reps and Warranties Preferred

A recently issued American General Finance Alt A MBS deal included what Moody’s Investors Service referred to as “a strong set of representations and warranties,” including an arbitration mechanism to settle repurchase disputes. Some mortgage investors have argued that mandated risk-retention is unnecessary due to reps and warrants. A week before the SEC released its proposed rule... Read More

Financial Reform Debate Intensifies in Senate

The rhetoric regarding regulation of the financial services industry has increased as the Senate gets closer to voting on financial reform legislation. Regulation of the mortgage industry and potential risk-retention requirements remain topics of disagreement among Democrats and Republicans. Sen. Richard Shelby, R-AL, recently proposed the creation of an independent consumer financial... Read More

Second Lien Servicing Seen as Sufficient

Democrats in Congress will likely allow servicers to address second liens and principal reduction without intervention, according to statements made this week. The surprising stance was revealed at a House Financial Services Committee hearing on the issue. At the end of March, Reps. Brad Miller, D-NC, and Keith Ellison, D-MN, introduced legislation to address... Read More

Lack of HAMP Mods Seen as an Incentive Issue

Servicers have not fully embraced the Home Affordable Modification Program partly because the financial incentives are not large enough, according to industry analysts. On average, servicers are receiving incentive payments of $1,000 for every $4,000 to $5,000 in modification costs they incur, according to a report released this week by the Congressional Oversight Panel... [Includes one chart and one graph] Read More

HAMP Penalties

The Treasury could soon begin to punish servicers that do not comply with HAMP guidelines. Anecdotal reports continue to suggest that some non-prime servicers delay the transition from trial mods to permanent mods and continue with foreclosure proceedings while modifications are in progress. A year after announcing HAMP, the Treasury has not disclosed the framework of procedures or... Read More

SEC Targets Inflated Subprime MBS Valuations

The Securities and Exchange Commission last week charged two related firms and two of their employees with fraudulently overstating the value of subprime mortgage-backed securities. The SEC said Morgan Keegan & Company and Morgan Asset Management hid the true impact of the subprime mortgage meltdown on investment funds they managed. The SEC alleged that Morgan Keegan failed to... Read More

Non-Agency MBS Still Being Downgraded

Moody’s Investors Service recently downgraded large amounts of non-agency mortgage-backed securities and a number of the sector’s securities are on watch for further possible downgrades. The actions spread across products, years and even re-securitization transactions. This week and last week, Moody’s Investors Service took actions on more than $185 billion in non-agency... Read More

WaMu, Citi, Criticized for Past Subprime Activity

Washington Mutual and Citigroup were singled out by two federal entities investigating the causes of the financial crisis that started in 2007. Hearings this week by the Senate Permanent Subcommittee on Investigations focused on WaMu while hearings last week by the Financial Crisis Inquiry Commission focused on Citi.Sen. Carl Levin, D-MI, chairman of the Senate subcommittee... Read More

NovaStar Afloat Due to Subprime MBS, Appraisals

NovaStar Financial continues to operate, thanks in part to a portfolio of poorly performing subprime mortgages. In late 2007 and early 2008, the company ceased originations and sold its mortgage servicing rights, but NovaStar continues to receive income from securitized subprime mortgages and an appraisal services unit.NovaStar was the 19th-ranked subprime lender in 2006, according... Read More

News Briefs

After 44 consecutive months of increases, delinquencies on subprime mortgage-backed securities fell to... Ocwen Loan Servicing this week agreed to use a new Web-based housing counselor tool that streamlines the... Ocwen Financial Corp. recently agreed to purchase $6.9 billion in mortgage servicing rights... The National Association for the Advancement of Colored People last week ended its lawsuit against... Read More

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