The long-anticipated settlement among mortgage servicers, state attorneys general and federal agencies will be a positive for the housing market but have a modest impact on non-agency MBS, according to Moody’s Investors Service. The deal provides $10 billion for principal reduction loan modifications, and coupled with an expansion of the Home Affordable Modification Program, should help up to 1 million homeowners avoid foreclosure, Moody’s said. That may be a relatively small number compared to the 14.6 million households that are underwater, but it will help curb the flow of foreclosed...

A new report from Fitch Ratings finds that risk appetite is returning to the U.S. triparty repo market, thanks in part to deeply discounted collateral, much of which is in the form of Alt A and subprime residential MBS and collateralized debt obligations. Fitch’s study of the market is based on repo transaction information drawn from a sample of the 10 largest U.S. prime money market funds’ financial statements. Fitch’s sample encompasses about $90 billion in repo transactions as of the end of August 2011, which represents slightly more than 5 percent of the $1.6 trillion U.S. triparty repo market...

Moody’s Investor Services ranked as the most active rating service in the non-mortgage ABS market last year, but finished 2011, as the least involved in non-agency MBS activity, according to a new Inside MBS & ABS ranking and analysis. Moody’s rated a total of $89.3 billion of non-mortgage ABS last year, or 70.4 percent of total issuance. That was up from a 53.7 percent share in 2010, when Moody’s rated some $58.9 billion and finished second to Standard & Poor’s. Moody’s strengths in 2011 were in the credit card, vehicle finance and business loan sectors, capturing over 70.0 percent of each of those...

New regulations are re-shaping the non-agency MBS market, but economic issues, the ratings process and shifting investor appetite may have more to do with the stalled recovery in the sector, experts said during the American Securitization Forum conference last week in Las Vegas. John Arnholz, a partner at Bingham McCutchen LLP, suggested that the regulators will end up issuing a new proposed rule on risk retention, given the widespread opposition to the original proposal. The proposed premium capture recovery fund idea “came out of nowhere,” he said, adding that there is a good deal of dissent among the six...

Redwood Trust’s four non-agency mortgage-backed securities – the latest of which was issued last week – have been generally well received by MBS investors. However, some investors, potential issuers and even the rating services have raised concerns regarding the non-agency MBS ratings process, both for Redwood and for other potential securitizers. A senior official at one of the rating services suggested to Inside Nonconforming Markets that ratings shopping is still occurring, and that the Redwood deals have been rated by the firms with the lowest credit-enhancement requirements ...

A settlement involving major servicers and state attorneys general could be close, as state AGs have until Feb. 6 to agree to a potential $25 billion settlement. Negotiations on the settlement have dragged on for 15 months and were previously slated to end Feb. 3. Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo would reportedly be included in the settlement. Some $17 billion in penalties paid by the banks would go toward principal reductions, $5 billion would go toward a reserve account that would ... [Includes three briefs]

There has been little progress in the development of new ways to pay for credit ratings even though researchers have seven proposed systems designed to address the conflicts of interest that have plagued the non-agency MBS market, according to a new Government Accountability Office report. The GAO noted that there were five significant ratings compensation models when it last reported on the subject in 2010, and two more have since been proposed. But the authors of these models have done little additional work to flesh them out, and none has been adopted in the marketplace, the GAO said. “Given that the [rating...

In a blow to ratings agencies, a federal court in New Mexico has ruled that the First Amendment does not necessarily protect ratings services from lawsuits filed by disgruntled MBS investors. Judge James Browning ruled that the characteristics of MBS issued by Thornburg Mortgage and the way the ratings were disseminated may preempt free speech protection. The suit dates back to the spring of 2009, when plaintiffs that include the Genesee County Employees’ Retirement System, Midwest Operating Engineers Pension Trust Fund and the Maryland-National Capital Park &...

Commercial banks will have to do more than just look at the credit rating on a security before deciding it qualifies as a potential investment under a proposed rule issued by the Office of the Comptroller of the Currency this week. The Federal Deposit Insurance Corp. is scheduled to consider a similar proposal next week. Under marching orders from the Dodd-Frank Act, bank regulators have been removing references to external credit ratings from a variety of regulations – even though banks themselves don’t agree with the change. Most commenters on earlier proposals from...

As the Securities and Exchange Commission considers updating its oversight of asset-backed securities issuers, such as enhancing investor protections and changing the use of credit rating agencies, major players in the securitization market are split on whether – and how – it should do so. The SEC is considering whether to revise Rule 3a-7, which excludes qualified ABS issuers from being classified as investment companies under the Investment Company Act of 1940. The rule now includes several conditions that refer to credit ratings by nationally recognized statistical...