The Federal Reserve’s proposed rulemaking that would establish the “qualified mortgage” as a standard for complying with the ability-to-repay requirement under the Dodd-Frank Act would create a number of significant legal liabilities that will threaten buyers of MBS, Wall Street groups said. The American Securitization Forum emphasized that questions about the lack of objective criteria in the proposal for determining whether a loan is a QM, and how little legal certainty the final rulemaking would actually provide, become of “critical importance when ...

Credit rating agencies and government regulators are making wholesale changes to the way they come up with and use credit ratings in order to prevent a repeat of the financial meltdown, witnesses at a hearing of the House Committee on Financial Services said. “While much has changed with regard to credit ratings and credit rating agencies over the course of the past several years, our fundamental mission remains the same: to provide the market with independent benchmarks about the creditworthiness of ...

The government program that came out of the Troubled Asset Relief Plan to provide liquidity for the non-agency MBS market by partnering with private investors was less profitable during the second quarter, according to a Treasury Department report released last week. The Public-Private Investment Program was created to invest in non-agency MBS that other banks couldn’t hold after the economic collapse. Non-agency MBS account for 79 percent of the assets acquired by the eight public-private investment funds, with commercial MBS making up the rest. Almost half of the MBS are ...

The Securities and Exchange Commission last week released a report on its many proposed rules relating to credit ratings, several of which pertain to asset-backed securities, as an update regarding its heavily-laden plate of rule changes that must eventually be adopted and implemented. When the Dodd-Frank Act became law, a new provision came with it in the Exchange Act, which required the SEC to collaborate with other regulators to “jointly prescribe” rules regarding mandatory credit risk retention in ABS offerings. These hotly-debated rules were proposed in ...

The Consumer Financial Protection Bureau issued an interim final rule last week that the new federal regulator said prevented significant disruption of the origination and modification of alternative mortgages – including ARMs. However, the interim final rule also narrowed the definition of “alternative mortgage transactions” that are eligible for preemption from state laws. The interim final rule temporarily updated the Alternative Mortgage Transaction Parity Act as required by the Dodd-Frank Act. “Without this interim rule implementing the AMTPA amendments, state lenders would lose ...

Analysts and legislative history suggest that Congress could still act to keep the “temporary” high-cost conforming loan limit at elevated levels. Advocates of the non-agency market have long-anticipated the drop in the loan limit, currently set to occur in October without further action from Congress. An extension of the $729,750 loan limit this year seems unlikely with the Obama administration supporting a decline to at least $625,500. Many Republicans also support a decrease in the role ...

Lenders and even consumer advocates are pushing for expansions to proposed streamlined refinance standards for “qualified mortgages.” Federal regulators proposed an exception to the QM ability-to-repay requirements for refis of “non-standard mortgages” into standard mortgages. “MBA urges the CFPB to revisit these criteria so more borrowers qualify for streamlined products and such products are treated as QMs,” the Mortgage Bankers Association said in a comment letter sent to the Federal Reserve. The comment period on the proposed rule ...

The Federal Reserve last week fined Wells Fargo & Co. $85.0 million, alleging that a non-bank subsidiary of Wells steered prime borrowers to subprime mortgages. The consent order is the first formal enforcement action taken by a federal bank regulatory agency to address alleged steering of borrowers into high-cost subprime mortgages. The civil money penalty is also the largest the Fed has assessed in a consumer-protection enforcement action. In addition to the civil money penalty, the order requires that Wells compensate more than ...

The Federal Housing Finance Agency this week filed a lawsuit against UBS Americas alleging misstatements and omissions on non-agency mortgage-backed securities purchased by Fannie Mae and Freddie Mac. FHFA Acting Director Edward DeMarco warned that further action against other non-agency MBS issuers is likely. “From the issuance of 64 subpoenas last year to the filing of this lawsuit and further actions to come, we continue to seek redress for the losses suffered by ...

An increasing number of non-agency mortgage-backed security investors have opposed Bank of America’s proposed $8.5 billion settlement related to buybacks and servicing. The proposed settlement announced last month was seen as a precedent for the sector, though final approval remains far from certain. MBS investors have raised concerns about the settlement price, conflicts of interest and second liens, among other issues. If approved, the settlement would apply to all investors in the 530 Countrywide Financial securities in question, not just to the 22 large firms represented by ...