The strength of the non-agency jumbo market is a major factor in efforts to reduce the government-sponsored enterprises’ market share, according to a former advisor for the Obama administration. “If the GSEs pull back too quickly, it will change the whole discussion,” said Jim Parrott, owner of Falling Creek Advisors and a senior advisor at the National Economic Council until earlier this year. “The political feedback will be very quick and ruthless. It would make GSE reform extremely difficult.” ...

Fannie Mae priced its first capital markets risk-sharing transaction this week, attracting even more investors than those that initially bought into a similar transaction from Freddie Mac. While non-agency mortgage-backed security investors haven’t shown significant interest in jumbo MBS recently, many are looking toward the government-sponsored enterprises’ risk-sharing deals. “There is voracious investor demand for risk-sharing,” said Randal Johnson, a director in the structured credit group at Deutsche Bank ...

The biggest originator of jumbo mortgages is redeveloping a platform to issue non-agency mortgage-backed securities, according to Larry Rubenstein, managing counsel at Wells Fargo. However, don’t expect jumbo MBS from Wells anytime soon as the bank has plenty of portfolio capacity. Wells hasn’t issued a non-agency jumbo MBS since 2008, when it was the top issuer of such securities, according to the Inside Mortgage Finance MBS Database. Speaking at the ABS East conference sponsored by Information Management Network ...

The qualified residential mortgage requirements recently proposed by federal regulators could force banks to retain mortgages in portfolio instead of issuing non-agency mortgage-backed securities, according to industry participants. The Dodd-Frank Act requires that non-QRMs be subject to required risk retention of at least 5 percent. In August, federal regulators proposed aligning the definition for QRMs with the definition for qualified mortgages established by the Consumer Financial Protection Bureau ...

While the Consumer Financial Protection Bureau has encouraged originations of non-qualified mortgages, industry analysts predict that such originations will begin slowly. Even before the QM and risk-retention requirements are implemented for non-qualified residential mortgages, few lenders have been willing to offer subprime mortgages. Originations of subprime mortgages will likely be non-QMs due to the higher interestrates required for subprime borrowers. According to a survey completed by Zillow, borrowers with credit scores under 620 who requested a quote for a 30-year fixed-rate mortgage were...

A reduction in agency loan limits would make a small portion of today’s mortgage market ineligible for the government-sponsored enterprises, according to a new analysis by Inside Nonconforming Markets. However, industry participants suggest that lower loan limits will help increase participation in the non-agency market and test whether the sector can take even more share from Fannie Mae and Freddie Mac. Mortgages with loan balances greater than $417,000 accounted for ... [Includes one data chart]

PennyMac Corp. wanted to test the market for non-agency jumbo mortgage-backed securities but it wasn’t generating enough collateral through its conduit program and turned to a bulk purchase to get a critical mass. The $550.46 million PMT Loan Trust 2013-J1 is set to receive AAA ratings with credit enhancement of 7.75 percent for the top-rated tranche. Some 70.7 percent of the mortgages to be included in the deal were acquired in bulk from Bank of America, which aggregated the loans from ...

Shellpoint Partners is preparing to issue a $308.64 million non-agency jumbo mortgage-backed security and officials at the firm are hoping that interest rates stay calm at least until the issuance is completed. Interest rates spiked after Shellpoint offered its first jumbo MBS in June, a $261.58 million deal, prompting the company to voluntarily provide credit enhancement of 20.0 percent on the security – double what was required by the rating services – in an effort to attract investors. The latest deal features ...

A number of companies are preparing to enter the non-agency jumbo mortgage-backed security market, bolstered by expected decreases to agency loan limits and eventual resolution of the conservatorships of the government-sponsored enterprises. David Akre, a managing director at Five Oaks Investment, said licensing for the real estate investment trust’s jumbo operations is nearly complete and the establishment of warehouse funding is 90 percent complete. David Carroll, CEO of Five Oaks, said increased competition ...

Lenders have started to loosen their underwriting standards for jumbo mortgages in an effort to increase originations for borrowers who have performed exceptionally well in recent years. Loan-to-value ratio requirements in particular have loosened, allowing for lower downpayments or increased use of second liens. After the non-agency mortgage-backed security market collapsed in 2008, combined LTV ratios of 70 percent were common for jumbos as lenders looked to prevent pricey foreclosures on ...