Federal Reserve Vice Chair Janet Yellen, President Obama’s nominee to replace Fed Chairman Ben Bernanke, did not deviate in the slightest from Bernanke’s support for a policy that has resulted in the Fed buying two thirds of new agency MBS production, during her nomination hearing before the Senate Banking, Housing and Urban Affairs Committee this week. “The Federal Reserve is using its monetary policy tools to promote a more robust recovery,” Yellen said. “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.” Sen. Mike Crapo, R-ID, ranking member of the committee, took issue...
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A Miami-based investment management firm, one of the largest junior preferred shareholders of Fannie Mae and Freddie Mac, this week offered to buy and operate the MBS guaranty businesses of the two government-sponsored enterprises with $52 billion of private capital and “a business plan that is sustainable with or without a federal reinsurance plan.” In a four-page letter to Federal Housing Finance Agency Acting Director Edward DeMarco, Bruce Berkowitz, chief investment officer of Fairholme Capital Management, proposed to form two new state-regulated insurance companies to own and operate the assets of Fannie and Freddie “that are relevant to the continuing insurance business.” Under the Fairholme plan, the new MBS guarantors would be capitalized...
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A reformed housing finance system should first and foremost put the risk and rewards of mortgage lending in the hands of “private actors,” with the government playing a key role to reduce the impact of the inevitable financial-market failures, “especially when their failures are exacerbated in a cyclical downturn,” an Obama administration official noted this week. Speaking at an Urban Institute event, James Stock, a member of the Council of Economic Advisers, outlined the administration’s central theme of “cyclical resilience” or the need for the mortgage finance system to provide liquidity at “reasonable rates” during both good and bad times. “A cyclically resilient housing finance system provides...
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Fitch Ratings released its “initial perspective” this week on how the Consumer Financial Protection Bureau’s ability-to-repay rule and requirements for qualified mortgages will impact ratings for new non-agency MBS. That makes Fitch the first rating service to provide formal insight on how the CFPB rule, which takes effect Jan. 10, will impact jumbo mortgage securitization. Fitch is considering requiring issuers to state the QM status of any mortgage to be included in an MBS, putting a greater emphasis on lender compliance and due diligence, and a focus on representations and warranties for compliance with the ATR rule and QM standards. “The rating approach will likely focus...
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Six months back, CoreLogic was bullish on the outlook for due-diligence work tied to jumbo securitizations. But earlier this month, the publicly-traded mortgage vendor shuttered its due-diligence unit, giving layoff notices to almost 70 workers. Another 40 or so full-timers will likely lose their positions in the next few months as the division winds down. Although the firm declined to discuss the reasons behind the pullout, competitors say the anticipated boom in jumbo securitizations hit a brick wall in the spring when rates spiked and investors began to shy away from the AAA pieces of those securities. In other words, the sour short-term outlook for due-diligence firms scouring for work on non-agency loans is resulting...
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Fannie Mae and Freddie Mac picked the low-hanging fruit first and sold large chunks of their most liquid “less-liquid” assets during the third quarter of 2013 as the government-sponsored enterprises continued to shift their business away from retained investments. The GSEs reduced their combined holdings of commercial MBS by 32.1 percent during the third quarter, according to a new Inside MBS & ABS analysis of their retained portfolios. The Federal Housing Finance Agency has directed the two companies to accelerate their portfolio trimming by focusing on “less-liquid” assets other than their own MBS. The commercial MBS market has been...[Includes one data chart]
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Foreclosure timelines and servicers’ emphasis on loss mitigation has dampened improvements to loss severities on non-agency MBS, according to Fitch Ratings. The rating service said this week that while national average home prices have increased by 14 percent in the past year, loss severities on liquidated properties in non-agency MBS have improved by only 5 percent. In the third quarter of 2013, it took an average of 32 months to liquidate a mortgage included in a non-agency MBS, according to Fitch, more than twice as long as average liquidation timelines in 2008. “Longer timelines translate...
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Although non-agency MBS issuance has been a dicey proposition since rates spiked in late spring, residential lenders continue to eye the sector, liking the long-term outlook for jumbo securities. Two nonbanks taking a close look at the jumbo MBS market include Freedom Mortgage and W.J. Bradley Mortgage Capital, both established names in the agency MBS arena. In an interview with Inside MBS & ABS, Freedom Mortgage CEO and founder Stanley Middleman said...
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A report released this week by analysts at the Federal Reserve Bank of Richmond suggests that real estate investment trusts that invest in agency MBS don’t necessarily pose systemic risks. “While mortgage REITs clearly present risks to investors, it is not yet clear where mortgage REITs fall relative to other financial institutions in terms of their systemic risk,” according to an economic brief from the Richmond Fed. REITs held...
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A Manhattan district court judge dismissed a lawsuit against Bank of America in which shareholders accused the bank of hiding a $10 billion fraud case, saying the defendant and several of its top executives were not obliged to reveal the lawsuit in advance to shareholders. Filed in 2011, the shareholders alleged that CEO Brian Moynihan and other BofA executives knew as early as February 2011 that insurer AIG intended to sue BofA in connection with $28 billion of MBS it bought from the bank and its Countrywide and Merrill Lynch acquisitions. According to the shareholders, the bank knew...
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