As part of its RMBS 3.0 initiative, the Structured Finance Industry Group this week released the second installment of its recommended best practices for the non-agency MBS market. New and revised material was released for each of the three major “work streams” in the project, which broadly cover: representation-and-warranty issues and repurchases; due diligence, data and disclosure; and the roles of transaction parties and bondholder communications. The 54 new pages released this week bring the cumulative work to about 125 pages, including appendices. In the reps-and-warranties section, new provisions cover...

A top Obama administration official told secondary market participants this week that the concept of a “benchmark transaction” could help the non-agency RMBS market overcome its feeble condition. Used in conjunction with the industry’s RMBS 3.0 project, such a mechanism could help clear away the rubble from the market’s collapse and attract big institutional investors that have largely refused to come back in from the sidelines. “The now widely recognized structural deficiencies in the legacy private-label securitizations that came to light during the financial crisis truly shattered the trust of market participants, with the result that almost seven years now after the collapse, this market is barely clinging to life,” said Michael Stegman, special counselor to the U.S Treasury for housing finance policy. “Concrete reforms are clearly needed to rebuild confidence and establish a resilient, sustainable architecture to bring back significant private capital to the U.S. housing market.” Stegman delivered...

The National Credit Union Administration this week sued Deutsche Bank National Trust Co., alleging the bank violated federal and state laws by failing to carry out its duties as trustee for 121 non-agency MBS trusts. According to the complaint filed in federal district court in Manhattan, Deutsche Bank failed to protect five corporate credit unions – U.S. Central, WesCorp, Members United, Southwest and Constitution – that purchased $140 billion in RMBS issued from the trusts between 2004 and 2007. The securities lost...

Bank of New York Mellon is looking to increase its master servicing activity on residential mortgages, according to officials at the firm that acquired the master servicing unit from JPMorgan Chase in October 2006. However, BNYM is up against stiff competition, including Wells Fargo, a dominant presence in master servicing for non-agency MBS. BNYM is focusing on growth opportunities from managing new funds in traditional residential mortgages as well as new loan types, according to a recent report by Fitch Ratings. In September, Fitch downgraded BNYM’s master servicer rating due to compliance issues, organizational changes and low activity in recent years. The firm has...

Pricing for jumbo mortgage-backed securities has improved in recent months, prompting an increase in issuance from some firms, but bank demand remains robust. “Although the difference has narrowed, our whole-loan sale execution for most jumbo loans continues to be more attractive than our securitization execution as a result of strong demand from banks,” Brett Nicholas, president of Redwood Trust, said this week during a call with investors. In the third quarter of 2014, Redwood issued ...

Originations by nonbanks of loans that don’t meet standards for qualified mortgages are off to a slow start, according to industry participants. “There is obviously a lot of noise in the area, a lot of announcements about people getting involved. And from what we have seen, there is nothing of any size and replicable flow that seems readily securitizable,” Michael Commaroto, CEO of Apollo Residential Mortgage, said this week during a call with investors. He said ...

JPMorgan Chase had the largest amount of holdings of non-agency mortgage-backed securities – by far – among banks and thrifts at the end of the second quarter of 2014, according to a new ranking and analysis by Inside Nonconforming Markets. Chase held $44.53 billion in non-agency MBS at the end of June, accounting for 34.5 percent of all non-agency MBS held by banks and thrifts. TD Bank, the second-ranked holder of non-agency MBS, had a ... [Includes one data chart]

A total of $51.18 billion of commercial mortgages were securitized during the third quarter of 2014 as the sector reached a new post-crisis high in new issuance, according to a new market analysis by Inside MBS & ABS. Commercial mortgage securitization rose 38.4 percent from the second quarter and represented the biggest three-month period in new issuance since the third quarter of 2007. For the first nine months of 2014, commercial mortgage securitization totaled $119.76 billion, down 24.4 percent from the same period last year. New issuance was off on a year-to-date basis because of the slump in production during the first half of 2014. Both sides of the market posted...[Includes one data chart]

Issuers of non-agency MBS should be able to price loans that don’t meet the standards for qualified mortgages at nearly the same levels as QMs, according to Andrew Davidson & Co., a firm that provides risk analytics on non-agency MBS. Non-QMs actually perform better than similar QMs in certain scenarios, as long as underwriting on the products is strong. Beginning in late 2015, non-QMs included in new non-agency MBS will trigger risk-retention requirements. Only mortgages that meet QM standards will be deemed to be qualified residential mortgages and exempt from risk retention. Interest-only mortgages appear...

Participants in the residential mortgage market were largely pleased with the risk-retention requirements finalized last week for certain non-agency MBS. However, the requirements, which also cover commercial MBS and other ABS, drew a wide range of criticism from others. “The short version is that the rule doesn’t require meaningful credit risk retention where it counts, and imposes significant market-shaping safe-harbor requirements where skin in the game isn’t so important,” said Adam Levitin, a professor of law at the Georgetown University Law Center. He noted...