The MBS market widely embraced the Federal Reserve’s decision to increase its holdings of agency MBS by $40 billion per month until job growth improves significantly, but some observers are questioning the long-term costs and effectiveness of the strategy. Mortgage Bankers Association Chief Economist Jay Brinkman said that the Fed plan is “a way to inject more money into the economy,” while noting that the purchase of the no-risk, lower-yielding assets is designed to force investors to expand their risk appetite. “The idea is that if the Fed steps in and buys up some of these safe-haven assets, that is going to force people to go out and invest more and take on more risk,” he said during an MBA conference in Washington, DC, this week. This approach “is actually turning...

Private capital remains on the sidelines of the mortgage finance industry, unwilling to gamble on future government policy or the nascent recovery in housing markets, industry experts say. Banks and their examiners are pointing fingers at one another over who is responsible for the current credit crunch because regulations are not all in place, according to Mark Zandi, chief economist at Moody’s Analytics. During a symposium in Washington, DC, this week, Zandi said providers of private capital are also concerned about a housing market that has performed much better in the last six months but still raises doubts about sustaining house price gains. “I don’t think [it can be sustainable] until we nail down...

The Federal Reserve’s decision to keep interest rates low until the U.S. economy creates a significant increase in employment will help banks continue to enjoy solid earnings from their mortgage banking activities, according to analysts at Credit Suisse. The Fed is increasing its already huge portfolio of agency mortgage-backed securities by $40 billion a month. Along with the $25 billion a month the central bank has been buying to replace principal paydown, the Fed’s total MBS acquisitions ...

Gibbs & Bruns, the law firm representing non-agency MBS investors that reached a precedent-setting settlement with Bank of America, is now targeting Wells Fargo and Morgan Stanley. The law firm’s clients issued Wells and Morgan Stanley a notice of non-performance last week identifying covenants in pooling and servicing agreements that the servicers have allegedly failed to perform. “The holders’ notice alleges that each of these failures has materially affected the rights of the certificate holders and constitutes an ongoing event of default in the servicer’s performance under the relevant PSAs,” the law firm said. Bank of America received...

The Federal Reserve is launching its aggressive new campaign to boost economic growth by gobbling up the lion’s share of new agency MBS production in a stagnant market. The volume of outstanding single-family agency MBS grew by just $651 million during the second quarter of 2012, according to a new Inside MBS & ABS analysis. At $5.382 trillion, the agency MBS market at the end of June was down 0.5 percent from the same point in 2011. Because the non-agency MBS market is...[Includes two data charts]

Wells Fargo and Morgan Stanley last week received notices from non-agency mortgage-backed security investors represented by the law firm of Gibbs & Bruns, which helped negotiate the pending $8.5 billion non-agency MBS settlement with Bank of America. Industry analysts suggest that the notices of non-performance could prompt settlements from Wells and Morgan Stanley, though the circumstances differ from the BofA case. The notices identify covenants in pooling and servicing agreements that the servicers ...

Fixed-rate mortgages comprised most of August’s FHA production, which totaled $22.1 billion, up 13.2 percent from July and 37.9 percent from a year ago, according to an Inside FHA Lending analysis of FHA data. FRMs accounted for 98.9 percent of new loans with FHA insurance in August. In-house originations made up 79.6 percent of new endorsements while purchase loans accounted for 56.1 percent of FHA originations during the month. Wells Fargo is the only top FHA lender to exceed the billion-dollar mark. In fact, the bank reported $2.2 billion in new FHA originations, 76.0 percent of which were produced in-house. The purchase mortgage share of Well’s total FHA originations was ... [2 charts]

A proposed move by Fannie Mae to cap its loan purchases from new lenders and servicers contingent on the lenders’ net worth, among other factors, is rife with unintended consequences and should be examined closely before the company takes final action, say industry officials. A spokesman for the government-sponsored enterprise confirmed that Fannie is looking to change how it conducts business with “unfamiliar” lenders in response to the “significant contraction” among the correspondent buyers in the secondary market. The consequence of the contraction has led to growth in the number of lenders seeking to do business directly with the GSE. “Many of these newly approved lenders are...

The single-family mortgage market continued to shrink during the first half of 2012, registering the 13th consecutive quarterly decline in mortgage debt outstanding since early 2008. The Federal Reserve reported late last week that there were $10.028 trillion of single-family mortgages outstanding at the end of June. That was down 0.5 percent from the previous quarter and represented a cumulative 10.3 percent drop since March 2008. The supply of home mortgage debt fell to its lowest level since the midway point in 2006. There are two growth sectors, however. The supply of Ginnie Mae single-family servicing surged...[Includes one data chart]

Royal Bank of Canada this week issued the first covered bond registered with the Securities and Exchange Commission. The $2.50 billion transaction was backed by a pool of Canadian mortgages, issued in U.S. dollars and received AAA ratings from major rating services. The SEC registration allowed RBC to sell pieces of the covered bond to non-institutional investors in the U.S. “The sale of covered bonds to retail investors will modestly expand the investor base, in our estimate,” said Howard Esaki, global head of structured finance research at Standard & Poor’s. The covered bond has...