The nation’s top court this week may have sent a subtle hint to the more than dozen big bank defendants being sued by the Federal Housing Finance Agency when it flatly declined to receive their petition to dismiss their cases, notes a legal expert. The 13 financial institutions – including Bank of America, Deutsche Bank, Goldman Sachs and JPMorgan Chase – sought to argue before the Supreme Court of the United States that the FHFA waited too long when it filed suit against the banks in 2011 over non-agency MBS the government-sponsored enterprises purchased prior to the 2008 financial crisis. SCOTUS said...

Reforms seen in the new era of non-agency jumbo MBS issuance aren’t enough to prompt significant investor participation, according to John Gidman, president of the Association of Institutional Investors. At a hearing this week by the Senate Committee on Banking, Housing and Urban Affairs, Gidman and others called for a number of changes to the non-agency market. “The fundamental structural and process weaknesses for non-agency residential MBS securitization have not been fixed in the current private-label securities market,” Gidman said. “The issuance process itself is very opaque. Ratings continue to be shopped, issuers are still incentivized to water down representations and warranties, and continued variability in structures and documentation make the market more challenging for investors and raise the costs of funding.” He acknowledged...

Clayton Holdings has long cooperated with members of the Residential MBS Working Group, but a change in personnel at the interagency group and a wide-ranging subpoena have strained the due diligence firm’s relationship with prosecutors, according to court filings. The U.S. Attorney’s Office for the District of Connecticut, on behalf of the RMBS Working Group, is seeking an order to compel Clayton to cooperate with a subpoena issued in early July. The subpoena relates to an investigation into 16 firms that participated in the issuance and underwriting of non-agency MBS from 2005 through 2007. The RMBS Working Group is looking into possible violations of the Financial Institutions Reform, Recovery and Enforcement Act. The subpoena essentially seeks...

Non-agency MBS investors are still unhappy with how negotiations for the $25 billion national servicing settlement were handled and are concerned that the federal government will pull a similar move in settlement negotiations with JPMorgan Chase. John Gidman, president of the Association of Institutional Investors, said non-agency MBS investors weren’t involved in negotiations for the national servicing settlement and haven’t been involved in ongoing discussions regarding Chase. He said using funds from non-agency MBS to remedy allegations of inappropriate, unlawful or illegal behavior on behalf of an issuer or servicer makes it harder for investors to price risk. “This consequently makes...

Issuance from new participants in the non-agency jumbo mortgage-backed security market wasn’t enough to offset reduced activity by Redwood Trust and others in the third quarter of 2013, according to a new ranking and analysis by Inside Nonconforming Markets. Issuance of jumbo MBS slowed particularly in September, as Shellpoint Partners delayed its planned security and PennyMac Corp. made changes to attract investors. A total of $3.94 billion in non-agency jumbo MBS was issued in the third quarter, a 9.1 percent decline from the previous quarter and about level with the issuance seen in the first three months of 2013. Redwood and Credit Suisse, the jumbo MBS sector’s two biggest players, slowed...[Includes one data chart]

Officials at Redwood Trust are calling for a gradual decline in conforming loan limits as opposed to an immediate repeal of the high-cost agency loan limits. Martin Hughes, CEO and director of the real estate investment trust, said market disruption due to a decline in loan limits is unlikely while non-agency mortgage-backed security investors said additional reforms are necessary. “If the conforming loan limits are reduced, I believe the private market would aggressively compete for those loans that exceed the new limit without any market disruption,” Hughes wrote in testimony this week for a hearing by the Senate Committee on Banking, Housing and Urban Affairs. He drew a parallel to the reduction of the high-cost loan limit in 2012 from $729,750 to $625,500. A gradual decline in the high-cost loan limit would be...

Jumbo mortgage-backed security structures used by Redwood Trust, PennyMac Corp., and others pose risks for investors, according to Moody’s Investors Service, although the rating service said bonds will only incur losses in “low-probability scenarios.” Moody’s raised concerns about features that go beyond the simple senior-subordinate structures that have been most common since the restart of the non-agency MBS market. Those features include...

Citadel Loan Servicing, which specializes in non-agency loans, has increased its maximum loan-to-value ratio to 80 percent from 75 percent. The change, which came about a week ago, is for fully documented loans.The privately held nonbank made the switch in response to borrower demand. “The phones are ringing like a son-of-a-gun,” said Citadel CEO Dan Perl. The Irvine, CA-based firm originates...

HUD Delays Implementation of Short-Sale Participation Requirement. The implementation of the PFS Participation Requirement, which is found in Mortgagee Letter 2013-23, Updated Pre-Foreclosure Sale and Deed-in-Lieu-of-Foreclosure Requirements, has been delayed indefinitely. All other provisions included in the mortgagee letter remain in effect. Previous guidance on short-sale participation requirements also remain in effect until further notice. FHA to Consolidate Lender ID Numbers. The FHA will consolidate the lender identification numbers of those participating in both the FHA Title I and Title II programs, provided ...

Rising prices for mortgage servicing rights in the second quarter of 2013 helped lure sellers to a market that continues to see a decline in available product and improving fundamentals. The Federal Reserve this week reported that the long, steady decline in home mortgage debt outstanding – a streak that has now run six and a half years – continued through the midway point in 2013. As of the end of June, home mortgage debt outstanding was down to $9.833 trillion, a 0.4 percent drop from March and a hefty 12.9 percent decline from the all-time high ($11.287 trillion) set back in March 2008. A new Inside Mortgage Finance analysis reveals...[Includes two data charts]