Private MBS investors will likely see reduced competition from the Federal Reserve later this year if the central bank begins to slow down its purchases of agency MBS, but there is also likely to be a sharp drop in new MBS supply at the same time. The Federal Open Market Committee made no changes in its policy of adding $40 billion a month to its massive $1.165 trillion portfolio of agency MBS, in addition to reinvesting payments from its agency debt and MBS holdings. It also promised to closely monitor economic and financial developments and stands prepared to increase or decrease its MBS purchases. But Fed Chairman Ben Bernanke later indicated...[Includes two data charts]
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Looser underwriting standards and concerns about the financial strength and limited operational history of Shellpoint Partners pushed the credit enhancement on the issuer’s pending non-agency MBS to levels not previously seen in the new wave of non-agency MBS issuance. Shellpoint is preparing a $261.58 million non-agency jumbo MBS, according to presale reports released this week. The deal is set to receive a AAA rating with credit enhancement of 10.10 percent on the top-rated tranche. AAA credit enhancement levels on recent deals from Redwood Trust and JPMorgan Chase have ranged...
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The Mortgage Bankers Association called for the Federal Housing Finance Agency to update standards for representations and warranties provided to the government-sponsored enterprises and asked for more transparent underwriting standards. “Confusion and uncertainty around representations and warranties standards continue to cause lenders to add their own overlays to the existing GSE credit standards,” said Bill Cosgrove, the MBA’s vice chairman. “As a result, lenders are only offering mortgages to those with the most pristine credit for fear that any borrower default will trigger costly repurchase requests.” The MBA detailed...
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Representatives of the structured finance industry are worried about the effect the Consumer Financial Protection Bureau’s ability-to-repay/qualified-mortgage rule will have on the revival of the non-agency MBS sector. One of their main concerns right now is that the further away a loan is from getting safe harbor protection as a qualified mortgage, the more legal uncertainty and higher costs there will be associated with it. Last week, analysts at Morningstar Credit Ratings LLC noted that the rule will allow a borrower in the first three years of the mortgage to bring legal action challenging whether the lender determined an ability to repay. If successful, the borrower can be entitled to up to three years of fees and finance charges, actual damages, and legal fees and costs, they said. Additionally, the borrower will be able...
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With the Federal Housing Finance Agency working on a common securitization platform for Fannie Mae and Freddie Mac, market participants are beginning to ask whether the residential finance sector really needs two government-sponsored enterprises. This week, at a policy forum in Washington, MBS co-inventor Lewis Ranieri and former GSE regulator James Lockhart suggested that the industry doesn’t need both Fannie and Freddie. The thinking is that a common securitization platform will facilitate the transition to a standardized GSE MBS, with slight variations, that would eliminate the current pricing differentials between Fannie and Freddie MBS. Speaking at the Bipartisan Policy Center, Lockhart noted...
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A new “pragmatic” secondary market reform plan released by four housing experts closely resembles the bipartisan legislation being drafted by key members of the Senate, including an ambitious implementation timeline that says the overhaul could be accomplished in about three years. Sponsored by the Milken Institute, the Urban Institute and Moody’s Analytics, the “Pragmatic Plan for Housing Finance Reform” features a new government MBS guaranty that would cover catastrophic losses after private credit enhancement is exhausted. Like the legislation being drafted by Senators Bob Corker, R-TN, and Mark Warner, D-VA, it would create a new Federal Mortgage Insurance Corp. to manage the new government MBS guaranty. Under the proposal, MBS insurers would be...
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Ambac Assurance Corp. may proceed with its fraud claims against JPMorgan Chase in connection with residential MBS that Ambac insured, a New York state judge ruled last week. In March 2012, Ambac filed suit against JPMorgan Chase, alleging fraudulent marketing of residential MBS by Bear Stearns and Co., which was acquired and renamed JPMorgan Securities. The suit claims that Ambac had to pay more than $200 million in insurance claims to investors from seven Bear Stearns securitization transactions that lost $1.8 billion. Ambac contends...
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