PNC Bank has sued Republic Mortgage Insurance Co. for refusing to pay claims and attempting to rescind coverage on thousands of legacy mortgage loans that came with the bank’s acquisition of National City Corp. in 2008. In a complaint filed in federal district court in Pittsburgh last week, PNC Bank alleged that the North Carolina mortgage insurer refused to honor coverage it sold to National City under a “flow” policy and “pooling” policy between 1989 and 2005 by increasing its rescissions and cancellations. The flow policy provided...

Some of the major players in what is likely to develop as the real estate owned rental securitization market are still unsure about how exactly the market will develop. However, investor interest in the REO rental sector is strong, even if securitizations will not receive AAA ratings. At a seminar this week hosted by the American Securitization Forum, Suzanne Mistretta, a senior director at Fitch Ratings, confirmed that the rating service will not give initial REO rental securitizations anything higher than a single-A rating. Fitch and others have been approached...

A National Association of Insurance Commissioners proposal for more conservative ratings of insurer holdings of residential and commercial MBS could result in higher risk-based capital requirements on some of these securities, warned analysts. As the proposal currently stands, the changes involve increasing the probability weights assigned to more pessimistic economic scenarios. However, the method by which the economic scenarios are created will not change, according to Barclays Capital analysts monitoring the work of NAIC’s Valuations of Securities Task Force, which was assigned to develop the risk-based capital proposal for insurers’ CMBS and RMBS holdings. The proposed peak-to-trough economic scenarios for RMBS and CMBS consist...

Interest shortfalls on non-agency MBS have increased significantly in the past five months, according to research by Morningstar Credit Ratings. The servicing-related issue causes investors to absorb unpredictable losses and could result in downgrades of non-agency MBS. A sample of 2,858 non-agency MBS deals (21,727 tranches) examined by Morningstar in May and again in August showed a 38.0 percent increase in the number of deals with interest shortfalls. Some 18.6 percent of non-agency MBS deals examined by Morningstar for the August remittance period experienced a shortfall in at least one tranche. Shortfalls increased overall even though 21.8 percent of the shortfalls seen in March had...

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...

Waypoint Real Estate Group confirmed this week that it received a $65.0 million loan from Citigroup to finance rentals of real estate owned properties. Industry analysts suggest that the financing from Citi is the first for the emerging sector from the debt markets and securitization of REO rental proceeds is expected soon. Officials at Waypoint said they could issue an REO rental security fairly quickly. However, before the Citi deal they noted that they were seeing better terms from balance-sheet lenders than from REO rental securitization. The rating services have issued...

The Securities and Exchange Commission has decided to set aside efforts to standardize credit ratings due to serious concerns raised by credit rating agencies and other market participants. Instead, the SEC said it will focus on rulemaking under the Dodd-Frank Act to achieve transparency in credit rating performance and in the methods used to determine credit ratings. In a mandated report to Congress on the standardization of credit ratings, the SEC said...

$7.5 Million FHA Mortgage Fraud Scheme. The Department of Justice has filed charges against top executives of a real estate brokerage for their participation in a mortgage fraud scheme that may cost the FHA $7.5 million in losses. Indictments were unsealed earlier this month in Manhattan federal court charging Mitchell Cohen and Erin Davis, the owner and sales manager, respectively, of Buy-A-Home, a real estate brokerage business in Queens, NY. The criminal charges follow a civil fraud lawsuit filed by the U.S. Attorney’s Office for the Southern District of New York last December against ...

Standard & Poor’s announced late last week that it updated the criteria for ratings on non-agency MBS with mortgage collateral originated before 2009. The new standards are effective immediately and will result in significantly more downgrades than upgrades, according to S&P analysts. The standards update criteria for credit, cash flows and rating stability, and introduce new methods for analyzing transactions that have fewer than 100 loans remaining in the pool. Vandana Sharma, a managing director and lead analytic manager for U.S. residential MBS ratings at S&P, said the new standards reflect key market trends. “In light of the stabilization of home prices and delinquencies in the U.S. mortgage market, these criteria seek...

Standard & Poor’s proposed rating criteria for commercial MBS would not impact three-quarters of conduit deals but could result in upgrades for some securities and downgrades for others, according to the rating agency. Whether the proposed criteria enhancements would restore CMBS issuers’ confidence in S&P ratings is unclear, but observers say that the potential for higher ratings for some securities could pave the way for S&P to regain its exalted spot in the CMBS market. Last year, S&P shocked the market when it refused...