A former analyst at Moody’s Ratings has accused the credit rating agency of complicity in the financial meltdown in 2008, while a federal judge in Texas dismissed a government lawsuit against major banks involving non-agency MBS because it was filed too late. In his 2012 whistleblower lawsuit against Moody’s, Ilya Kolchinsky, a former analyst with the firm, alleged that the rating service issued inflated ratings, often “Aaa,” to most risky residential MBS and collateralized debt obligations it reviewed from 2004 to 2007. The lawsuit was brought...

Issuers of non-agency MBS and commercial MBS, among other structured finance asset classes, are set to face increased costs to comply with a rule from the Securities and Exchange Commission that increases disclosure requirements. But deals that are not issued publicly would avoid the increased costs. Last week, the SEC unanimously adopted a wide-ranging final rule known as Reg AB2, which was first proposed in 2010. By the beginning of 2017, newly issued, publicly registered non-agency MBS will have to include 270 loan-level data points disclosed via the SEC’s Electronic Data Gathering, Analysis, and Retrieval system, known as EDGAR. The required disclosures include...

The rating services are set for increased oversight after the Securities and Exchange Commission approved a final rule addressing internal controls, conflicts of interest and procedures in an attempt to protect the integrity of rating methods. The SEC approved the final rule on a 3-2 vote last week, with the two Republican commissioners voicing strong opposition to provisions required by the Dodd-Frank Act. Among other issues, the final rule aims at preventing sales and marketing considerations from influencing the issuance of credit ratings on structured finance products. Under the rule, rating services are prohibited from issuing or maintaining a credit rating when a person within the rating service that participates in determining or monitoring the rating also participates in sales or marketing of a product or service of the rating service or an affiliate. The rule also targets...

Standard & Poor’s is evaluating comments on a proposal to incorporate new criteria for rating residential MBS backed by mortgage servicer-advance receivables. Issuance of servicer-advance MBS has been scarce in 2014 due to the heightened regulatory scrutiny on nonbank servicers and potential ratings volatility, leading to fewer purchases of mortgage servicing rights. So far, only one deal – a $400 million unrated servicer-advance securitization in early April – has been seen this year. But with additional clarity being provided in S&P’s proposed ratings criteria and the revised methodology getting finalized over the near term, “issuers may start feeling...

The Securities and Exchange Commission this week approved a final rule with new requirements for rating services and due diligence providers. The rule was approved on a 3-2 vote, with the SEC’s two Republican-appointed commissioners chafing at standards required by the Dodd-Frank Act. Among other provisions, the SEC is requiring nationally recognized statistical rating organizations to strengthen their internal controls, establish new procedures designed to protect the integrity of rating methods ...

Investor demand for re-performing loans has been so strong in recent months that some firms are sitting on the sidelines as yields have become unattractive. Re-performing loans are being sold both as whole loans and in non-agency MBS, largely without ratings. William Gorin, director and CEO of MFA Financial, said the real estate investment trust has been investing in unrated non-agency MBS backed by re-performing loans that were originated between 2005 and 2007. “The average credit support is...

Moody’s Investors Service this week announced a proposed update to its rating criteria for jumbo mortgage-backed securities. Under the proposed criteria, collateral modeling will be based on a new version of Moody’s Individual Loan Analysis tool as opposed to the portfolio analysis tool Moody’s has used since 2008. Navneet Agarwal, a managing director at Moody’s, said the proposed changes set “a new standard for transparency” ... [Includes six briefs]

Standard & Poor’s said it is working with the Securities and Exchange Commission to address issues raised by the enforcement staff in connection with botched ratings of several commercial MBS transactions in 2011. A spokesperson for S&P said the rating agency and its parent company, McGraw Hill Financial Inc., are cooperating with the SEC after receipt of a “Wells Notice” last week indicating both companies may soon be the target of a regulatory enforcement action. The SEC notice is...

Smaller and mid-size mortgage lenders were more likely than larger lenders to say their credit standards tightened over the past three months and will tighten more in the next quarter, while larger lenders were more likely to say their credit standards eased in the prior quarter and will continue in the next, according to results of a new lender survey announced by Fannie Mae. The divergent view of credit standards between larger lenders and others is among the key findings of the government-sponsored enterprise’s new Mortgage Lender Sentiment Survey. The quarterly survey focuses on the supply side of the mortgage business and dovetails with Fannie’s monthly national survey of consumers, which provides current information on the demand side of housing. Lender survey results collected during the first two quarters of 2014 showed...

Redwood Trust took three months off from issuing jumbo MBS but came back with something of a doozy this week: a $306.05 million deal that will include some loans that don’t meet standards for qualified mortgages and some loans that weren’t subject to third-party due diligence reviews. Sequoia Mortgage Trust 2014-2 is set to receive AAA ratings with credit enhancement of 7.75 percent on the top-rated tranche. While the credit enhancement requirements are somewhat high, a jumbo MBS from Redwood in November had even higher credit enhancement levels, suggesting that the non-QMs and lack of full due diligence aren’t a major concern. Only three of the 438 mortgages to be included in the deal are...