New federal restrictions on mortgage broker compensation will likely add momentum to the shift away from wholesale mortgage production programs and ultimately dampen MBS prepayment speeds, according to an analysis by Barclays Capital. Most major primary market lenders have been moving away from the broker market since the housing sector began to crumble in 2007. According to Inside Mortgage Finance, an affiliated newslet-ter, the broker share of new mortgage originations peaked in 2005 at 31.3 percent of primary market lending. Between 2005 and 2007, brokers accounted...

The Federal Reserve Bank of New York last week sold only $1.9 billion of the initial $3.8 billion of non-agency MBS up for auction out of its Maiden Lane II portfolio. On March 30, 2011, the NY Fed announced that through its investment manager, BlackRock Solutions, it would begin the process of selling assets in the MLII portfolio both individually and in segments “over time as market conditions warrant through a competitive sales process.” Maiden Lane was created to bail out American International Group during the financial crisis and acquired...

The supply of single-family MBS outstanding in the market declined again in the first quarter of 2011, hitting its lowest level since the third quarter of 2007, according to an Inside MBS & ABS analysis of new agency data. Single-family MBS totaled $6.564 trillion as of the end of March, down 0.4 percent from the end of 2010. The single-family MBS market peaked in the third quarter of 2009 at $6.981 trillion and has been in steady decline since then. That’s largely because the supply of home loan debt has been declining since early 2008 as house values have eroded, cash-out refinance activity has...[includes one data chart]

With fears that too few qualified residential mortgages will be originated to support a strong securitization market, the American Securitization Forum proposed that mortgage-backed securities should be allowed to include a blend of QRMs and non-QRMs. MBS issuers also called for loosened underwriting requirements for certain non-QRMs.The proposal was included in the ASF’s comment letter to federal regulators regarding proposed risk-retention rules. Comments were initially due last week but federal regulators recently extended...

Rating agency DBRS has clarified its position on several key provisions following a review of market comments on its exposure draft on third-party due diligence criteria for U.S. residential MBS. Not all firms can produce 36 months of payment history on seasoned home loans, particularly with respect to recently purchased home loans. Hence, verification of the pay histories of loans seasoned more than 18 months up to less than 36 months will be allowed...

The Federal Housing Finance Agency last week issued a final rule regarding the FHLBanks which limits the Banks’ mortgage-backed securities holdings, especially non-agency MBS. In its notice, published in the May 20 Federal Register, the FHFA said it is re-organizing and re-adopting existing investment regulations that were previously issued by the Federal Housing Finance Board. The final rule will retain the Finance Board’s Financial Management Policy provision limiting MBS holdings to 300 percent of a Bank’s capital. “Contrary to suggestions that the 300 percent of capital limit was inflexible and outdated, FHFA believes the limit reasonably serves to control Bank investment activity that does not...

Fannie Mae and Freddie Mac mortgage-backed securities remained a preferred investment for the Federal Home Loan Banks during the first quarter of 2011 with only a negligible decrease from the previous quarter, according to a new analysis and ranking by Inside The GSEs based on data from the Federal Housing Finance Agency.Meanwhile, Ginnie Mae securities continued to grow in popularity within the FHLBank system during the first three months of this year. GSE MBS still accounted for 66.7 percent of combined FHLBank MBS portfolios. The Finance Agency’s data do not separately break out Fannie Mae and Freddie Mac volume or share. Ginnie MBS grew by... [Includes one data chart]

Everyone seems eager to see the private sector re-enter the MBS market, but it simply isn't ready or willing, and won't be for a very, very long time, according to experts in an American Securitization Forum seminar held this week. "From our perspective as an investor, one of the things that you really have to think about when you look at the mortgage market is what investors, big institutional investors, are interested in purchasing. The biggest thing in our mind is liquidity," said Nancy Handal, a managing director at Metropolitan Life Insurance Company. "We learned a ton as investors from the crisis in 2008," she continued...

U.S. banks are generally more liquid than Basel III liquidity standards would suggest thanks in large part to the treatment of banks' large portfolios of GSE-related securities, according to Fitch Ratings.

The so-called RMBS 2.0 features squeaky-clean collateral and high-definition transparency, but industry experts say, more importantly, that after years of mostly talk there is now some momentum in the market. Adam Yarnold, a managing director at Barclays Capital, said there are half a dozen residential mortgage conduits – including his firm – that are buying loans. During a panel session at the secondary market conference sponsored by the Mortgage Bankers Association, he noted that more broker/dealers are in the wings. Barclays is buying high-quality loans with loan-to-value ratios below 70 percent and debt-to-income ratios that come close to the standards proposed by federal regulators for qualified residential mortgages, Yarnold said. The company hosts a web-based portal through which it locks loans and...