Credit Suisse this week obtained ratings on its first non-agency jumbo MBS of 2013 in a deal that includes sunsets for certain representation and warranties as well as a contribution from Two Harbors Investment, which has been working for years to issue non-agency MBS on its own. The $425.67 million CSMC Trust 2013-TH1 received AAA ratings from Fitch, DBRS and Standard & Poor’s. The top-rated tranche had a credit enhancement of 7.05 percent, well above the 5.85 percent level on Credit Suisse’s previous deals but in line with recent Redwood transactions. DBRS said...

Moody’s Investors Service and Fitch Ratings have downgraded the senior unsecured and issuer default ratings of The McGraw-Hill Companies, parent of Standard & Poor’s, to below A-level ratings with a negative outlook. The downgrades are largely due to the Department of Justice’s recent lawsuit regarding ratings of collateralized-debt obligations and rating models for non-agency MBS. “The Baa2 rating balances the company’s history of prevailing in its legal defenses against the potentially substantial negative credit effects that could result from adverse litigation or settlement outcomes,” Moody’s said after downgrading McGraw-Hill’s senior unsecured rating from A3 late last week. “In addition, the management focus and direct costs involved in defending litigation may be a persistent drag on the company’s operations over the intermediate term.” Moody’s said...

Two months back Macquaire Equities Research issued a report declaring that investing in agency MBS “is like playing a game of chicken.” The analytics firm was speaking mainly about REITs, advising its clients to “take the dividends and run.” Its chief concern was that MBS investing REITs aren’t diversified. “We spoke with agency REIT management teams and found that while the current environment is challenging, for the most part they remain committed to the agency MBS asset class,” wrote Macquarie analyst Jasper Burch. Earlier this month, hedge fund giant Cerberus Capital filed...

A modest decline in FHA endorsements of jumbo loans in the fourth quarter of 2012 could presage further declines this year, following the Department of Housing and Urban Development’s recent proposal to raise the downpayment requirement to 5 percent, from 3.5 percent, for loans above $625,500. The FHA already has raised its jumbo mortgage insurance premiums to 1.55 percent annually and increased the monthly premiums on new, non-jumbo FHA mortgages by 10 basis points. The agency retained the 3.5 percent downpayment for new forward mortgages below $625,500. The increased premiums are ... [2 charts]

Moody’s Investor Services ranked as the top rating service in non-mortgage ABS ratings during 2012, according to a new Inside MBS & ABS ranking. DBRS was the leader in rating non-agency MBS transactions last year. In a market that grew by 15.9 percent in 2012, Moody’s increased the volume of ABS deals it rated by just 6.9 percent over its activity back in 2011. Still, the company edged past Fitch Ratings with a 64.9 percent market share even though it mostly sat out the booming credit card sector. Moody’s had its highest penetration rates in business loan ABS and was well represented in student loan and vehicle finance securitizations. Fitch had...[Includes two data charts]

The Department of Justice filed a civil action in Los Angeles this week against Standard & Poor’s Rating Services and its parent the McGraw-Hill companies for $5 billion, accusing S&P of defrauding investors by falsely representing that its ratings on certain collateralized debt obligations were “objective, independent and unencumbered by any conflicts of interest.” The Justice Department’s complaint alleges that S&P “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in its ratings of “trillions of dollars” of residential MBS and CDOs between 2004 and 2007. DOJ contends...

A credit rating agency has agreed to be barred for 18 months from rating asset-backed and government securities issuers, while a former broker-dealer executive has been charged with duping investors in connection with the sale of MBS. Egan-Jones Ratings Co. and its owner/president, Sean Egan, have agreed to the temporary prohibition as part of a settlement with the Securities and Exchange Commission for allegedly “making willful and material misstatements and omissions” while registering with the SEC to become a nationally recognized statistical ratings organization for ABS and government securities. The SEC discovered...

Covered bond investors are taking a more flexible view of ratings and other characteristics associated with these investments, according to a survey conducted last month by Fitch Ratings. “Continuing a trend discovered during last year’s survey, the results … reveal that investors are increasingly willing to innovate, not only in terms of bond characteristics, but also in terms of rating,” analysts at Fitch said. For example, “a remarkable 91 percent of investors declared...

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings accounted for a combined 96 percent of all credit ratings across all five rating categories, according to the Securities and Exchange Commission’s annual report on nationally recognized statistical rating organizations (NRSROs). There were NRSROs registered with the SEC during the year ending in the second quarter of 2012. They were A.M. Best Co.; DBRS, Inc.; Egan-Jones Ratings Co. (EJR); Fitch; Japan Credit Rating Agency; Kroll Bond Rating Agency (KBRA); Moody’s; Morningstar Credit Ratings; and S&P. They provided ratings in five credit rating categories: asset-backed securities (including mortgages); corporate issuers; financial institutions; government securities; and insurance companies. The report showed...

The dismissal of a lawsuit from non-agency MBS investors against the rating services was confirmed last week, including a ruling that ratings from Fitch Ratings, Moody’s Investors Service and Standard & Poor’s were not negligent misrepresentations. The U.S. Court of Appeals for the Sixth Circuit confirmed the September 2011 dismissal of a lawsuit brought by investors led by the Ohio Police & Fire Pension Fund. The lawsuit related to 308 AAA-rated non-agency MBS issued between 2005 and 2008, with the investors taking losses of $457 million from the securities. The investors claimed...