Fitch Ratings has placed 157 residential MBS classes serviced by Residential Capital on Rating Watch Negative as the ailing subsidiary of Ally Financial slid closer to bankruptcy. The rating action came on the heels of a Fitch downgrade of ResCap’s issuer default rating to ‘C’ from ‘CCC’ on April 18. In addition, Fitch placed GMAC Mortgage’s servicer rating on Rating Watch shortly before the adverse rating action against ResCap. Fitch said the coordinated rating actions reflect the current uncertainty for the servicing portfolio due to the growing possibility of a bankruptcy or debt restructuring for...

Short sales on mortgages included in non-agency mortgage-backed securities have increased sharply in the past year, as a percentage of total distress property dispositions, according to analysts at Deutsche Bank Securities. The loss mitigation technique is seen as beneficial for borrowers, portfolio servicers and non-agency MBS investors, especially compared with foreclosure costs and timelines. “Short sales typically result in faster resolution and significantly higher principal recovery,” the analysts said. Short sales accounted for about ...

The Obama administration’s Residential MBS Working Group, set up in January to probe misconduct that drove the financial crisis, is apparently trying to tap the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to make such cases easier to bring. Although it hasn’t been used that much, the appeal of pursuing criminal investigations under FIRREA is apparently the relatively lower burden of proof than bringing more traditional criminal charges. Also, FIRREA has a longer statute of limitations than do other finance-related laws, along with the potential for large fines...

The Treasury Market Practices Group this week issued new guidance on the system of charges for failed agency MBS trades that went into effect earlier this year, hoping to address lingering industry concerns about the voluntary program. The group acknowledged that market participants will likely see an increase in operational expenses from the system, but participants should see a decline in the amount of resources they have to commit to addressing these issues as the number of failed trades declines. For the agency MBS market, the TMPG said its recommended two-day resolution period should allow...

A Chicago police officers’ pension fund has filed suit against Bank of America and U.S. Bancorp, claiming that the two banks failed to protect investors during their turn as MBS trustees and violated an obscure, seven-decade-old federal securities statute. The lawsuit, brought last week by the Chicago Policeman’s Annuity & Benefit Fund, said that BofA, and later U.S. Bank as successor trustee, “regularly disregarded their contractual and statutory duties” by failing to oversee some 41 Washington Mutual trusts backed by home loans. “By failing to perform their duties, defendants have caused MBS holders...

Wells Fargo and JPMorgan Chase reclassified more than $3 billion of second-lien mortgages as nonperforming loans in the first quarter of 2012, a move other banks have copied. Both Wells and JPMorgan said that federal guidance from late January was behind the change. Wells characterized $1.7 billion of subordinate home-equity loans as nonperforming and JPMorgan assigned $1.6 billion to that status. “We do not view this as a material shift in the performance of these loans or the reserving methodology,” Fitch Ratings wrote. “However, increased regulatory scrutiny of second liens may continue to...

Some liberal interest groups are questioning whether the RMBS working group formed by federal and state enforcement agencies to coordinate securitization investigations is moving fast enough. In an email circulated earlier this week, CREDO, a progressive network, wrote that the Department of Justice has yet to deliver on its promise of 55 investigators to the RMBS working group. As federal and state enforcement agencies were wrapping up the contentious $25 billion settlement with five mortgage servicers in late January, U.S. Attorney General Eric Holder announced a new task force designed to “stream...

Mortgages modified by Freddie Mac performed slightly better than Fannie Mae loans in the short term while the performance gap between the two GSEs widened further one year after modification, according to the Office of the Comptroller of the Currency.OCC’s latest Mortgage Metrics Report noted that Freddie loans had an 11.3 percent re-default rate three months after modification, while Fannie mods saw an 11.7 percent rate. At the six-month mark, Freddie stood at 18.1 percent compared to Fannie’s 18.8 percent.

An ongoing Securities and Exchange Commission investigation into possible misconduct related to Wells Fargo’s sale of almost $60 billion in MBS has resulted in the agency filing a subpoena enforcement action in the U.S. District Court for the Northern District of California against the firm. “The commission is investigating possible fraud in connection with Wells Fargo’s sale of nearly $60 billion in residential MBS to investors,” the SEC said. “Pursuant to subpoenas dating back to September 2011, the bank was obligated to produce (and agreed to produce) documents to the...

Residential MBS investors should expect loans in states that require judicial review for every foreclosure to incur greater costs as they make their way through the foreclosure process, according to a new Moody’s Investors Service report. The rating agency’s fourth quarter 2011 Servicer Dashboard found that the average days in foreclosure at year-end 2011 stood at 654 days in judicial states and 297 days in non-judicial states with further increases in the foreclosure timelines expected. Of the six banks the Moody’s report observes – Bank of America, Chase, Citi, GMAC, Ocwen and Wells Fargo – the...