The nonagency, nonprime MBS market continues to generate plenty of interest among mortgage professionals, but the number of securities being generated – and contemplated – remains small. The situation isn’t likely to change anytime soon, but there are developments on the horizon that could spur an increase in issuance. According to interviews conducted by Inside MBS & ABS, the number of investors interested in buying nonprime whole loans is increasing. So far, the primary attraction is the higher yield offered by these non-Fannie Mae/Freddie Mac and FHA loans. Last year, roughly $2 billion in nonprime loans were originated...

Redwood Trust is preparing to issue a $344.89 million jumbo mortgage-backed security next week, according to a presale report from Kroll Bond Rating Agency. Most of the mortgages in the planned deal are subject to the TRID mortgage disclosure rule. The combined Truth in Lending Act/Real Estate Settlement Procedures Act rule from the Consumer Financial Protection Bureau took effect in early October. Since then, only one jumbo MBS has included TRID loans ...

Hopes for a resurgence of issuance of non-agency mortgage-backed securities backed by new mortgages appear to be tied more to banks than to steps Congress might take to reduce the government-sponsored enterprises’ footprint, according to industry analysts. Since the financial crisis, banks have largely opted to hold non-agency originations in portfolio instead of issuing MBS. According to an analysis by Bank of America Merrill Lynch, capital requirements have given banks ...

The public mortgage-backed security shelf recently filed by Redwood Trust was drafted with significant input from the Securities and Exchange Commission, according to a review of correspondence between the jumbo MBS issuer and the SEC. After Redwood’s new Form SF-3, which allows for $4.83 billion in MBS issuance, was published in mid-May, the SEC released four letters sent to Redwood during the drafting stage for the shelf. Redwood’s responses to the SEC’s inquiries were also ...

Comparing 2005 with 2015, the share of loan applications from borrowers with low credit scores has declined at a greater pace than originations of mortgages to borrowers with lower credit scores, according to CoreLogic. “The decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity,” said Archana Pradhan, an economist at ... [Includes seven briefs]

One of the government-sponsored enterprises appears likely to test a form of credit-risk transfer that mortgage bankers have been clamoring for: transactions that allow mortgage sellers to pay lower MBS guarantee fees on loans that have deeper mortgage insurance coverage than is required by the GSE charters. Robert Schaefer, vice president for credit enhancement strategy at Fannie Mae, said there is “a high probability that we will do an MI deal later this year that addresses the pain points” the GSE sees in the deeper MI concept. “We are talking...[Includes one data table]

Some potential investors in new non-agency MBS insist that a deal agent or transaction manager is necessary to revive the non-agency MBS market. Some issuers are willing to include a deal agent in their securities, though the exact functions and pricing issues still need to be worked out. “Many potential buyers of residential MBS have a strong desire for improved transaction governance mechanisms such as the use of independent deal agents,” Moody’s Investors Service said in a report published late last week. The rating service recently held a meeting with investors, issuers and others involved in the non-agency MBS market. Moody’s said...

Issuers of non-agency MBS willing to issue publicly-registered securities can look forward to thorough reviews by the Securities and Exchange Commission. Redwood Trust filed an updated shelf registration with the SEC this month and the SEC released some of the feedback that went into crafting the issuer’s new Form SF-3. Issuance of publicly-registered non-agency MBS has been minimal since the financial crisis, with issuers seeing pricing in the private 144A market as adequate. Public transactions are subject to more extensive disclosure standards than private deals. An initial letter from the SEC dated Oct. 29, 2014, noted...

The share of new home mortgage originations packaged into MBS drifted slightly lower in the first quarter of 2016, a new Inside MBS & ABS analysis reveals. Some $255.7 billion of newly originated mortgages were pooled in MBS in the first three months of the year, representing a paltry 67.3 percent of the estimated $380 billion of first-lien originations in the primary market. For the purposes of calculating securitization rates, loans aged more than three months and modified loans are excluded from agency MBS issuance figures. Fannie Mae and Freddie Mac securitized...[Includes one data table]

Risk-retention requirements included in the Dodd-Frank Act that met strong opposition from industry participants may turn out to be a profit source for some real estate investment trusts. Non-agency MBS have been subject to risk-retention requirements since the end of 2015, while the rules go into effect at the end of this year for commercial MBS and other asset classes. “I believe...