Fannie Mae and Freddie Mac could be used to help establish a functioning non-agency market, according to a strategic plan released last week by the Federal Housing Finance Agency. The conservator of the government-sponsored enterprises said it is working on various initiatives to gradually reduce the GSEs’ roles in housing finance. “The strategic goals and performance objectives set forth here provide an outline for the next chapter of the story, one that focuses in earnest on building a secondary mortgage market infrastructure that will live beyond the enterprises,” said Edward DeMarco, acting director of the FHFA, in testimony this week before the Senate Committee on Banking, Housing, and Urban Affairs ...

The largest private-owned nonbank mortgage company is trying to launch an initial public offering for an affiliated business that will use the capital to amass an investment portfolio in non-agency jumbo mortgages. Provident Mortgage Capital Associates was created by Provident Funding Associates, a privately held mortgage banker that ranked 12th in loan originations in 2011, the second largest nonbank lender in the industry. While PFA will remain privately held, it will manage operations at the publicly traded PMCA and ...

At least five firms revealed recently that their non-agency mortgage-backed security activity is under investigation by the Securities and Exchange Commission and/or the Department of Justice. The firms are Ally Financial, Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo. The companies revealed little about the topic of the investigations, though some are related to mortgage securitization and disclosures while others relate to potential origination or underwriting fraud ... [Includes four briefs]

In a mortgage market still dominated by Fannie Mae, Freddie Mac and government-insured lending, the non-agency jumbo sector stood out as the only one to show year-over-year growth in 2011, according to a new Inside Mortgage Finance ranking and analysis. Jumbo mortgage originations rose 13.5 percent from 2010 to 2011, while overall production was down 17.2 percent from the year before. The $118 billion of non-agency jumbo originations in 2011 represented the biggest annual output since the market collapsed in 2008 and agency loan limits were jacked dramatically...(Includes two data charts)

Activity in the Home Affordable Modification Program’s Principal Reduction Alternative is heavily concentrated, according to an analysis by Inside Nonconforming Markets. Bank of America and Wells Fargo combined account for 51.4 percent of the non-agency principal reduction mods, based on new disclosures by the Treasury Department. The servicers’ PRA activity is outsized even compared with their overall non-agency HAMP activity. BofA and Wells combined account for 33.6 percent of active non-agency HAMP mods ... [Includes one data chart]

Reaction among non-agency participants regarding the settlement by five large bank servicers announced last week has been mixed. Investors are divided on what impact principal forgiveness loan modifications will have on non-agency mortgage-backed securities – largely because the settlement terms have not been settled yet. “Once the bank modifies their own portfolio loans, where it makes sense to reduce principal, there is a huge incentive to do the rest of the modifications using investor money,” warned Amherst Securities Group. “This stems from the fact that the servicers are able to use investor funds to satisfy their own claims. And the conflicts of interest are exacerbated because of the second liens ...

With prices relatively low, vintage non-agency mortgage-backed securities have been a hot item in recent weeks. Some analysts suggest that the buying boom has already peaked and the collateral is overpriced again, though a significant amount of non-agency MBS is still available for sale. “The non-agency market has rebounded in 2012 after a poor second half of 2011,” according to analysts at Bank of America Merrill Lynch. The Federal Reserve’s two sales in as many months of Maiden Lane assets are as good an indicator as any that investor demand for non-agency MBS is strong ...

Non-agency market participants and stock investors appear to be optimistic about the prospects for real estate investment trusts. REITs are positioned to absorb a portion of the agency share of mortgage origination activity, and investor interest in REIT stocks has increased recently. “REITs should definitely take a big part of the agency footprint,” said Michael Commaroto, president and CEO of Apollo Residential Mortgage, a hybrid REIT. Such REITs invest in both agency MBS and non-agency MBS, with agency MBS generally accounting for most of the investing portfolio ...

After making a splash with plans to issue a non-agency mortgage-backed security in 2011, officials at Two Harbors Investment have backed away from a potential new issuance, instead focusing on investing in vintage non-agency MBS. “We don’t want to do a securitization simply to do a securitization,” said Tom Siering, president and CEO of Two Harbors. “It simply must be good for shareholders.” During an investor presentation last week, Siering said returns on investments in non-agency MBS in recent months have been much greater than the returns the real estate investment trust would see from issuing its own non-agency MBS ...

MBS trustees are facing challenges on a number of fronts, according to panelists at the American Securitization Forum’s ASF 2012 conference last week in Las Vegas. Issuers are counting on trustees to provide new information required by the Securities and Exchange Commission, communications with the rating services have become strained, and municipalities are looking to require property maintenance on abandoned homes. Under the Dodd-Frank Act, the SEC now requires ABS issuers to disclose the three-year history of the repurchase requests they’ve received – including those withdrawn and those disputed...