RMBS

The government is a month into selling its AIG holdings. Despite the bids for the auctions being pre-announced, the sales are causing a commotion in the RMBS secondary market, and the reaction from securitization players is not entirely positive.

The latest impediment to non-agency securitization stemming from the Dodd-Frank Act (DFA) is the proposal to create "premium capture cash reserve accounts" (PCCRAs). This provision, contained in the recent interagency document that proposed how the "risk retention" provisions of the DFA would be defined and implemented, would require the creation of a cash account to prevent structurers from attempting to monetize what they define as "excess spread." In my view, this proposal could be highly damaging to consumer mortgage lending and is premised on a flawed understanding of securitization practices. It also represents another in a series of impediments to the revival of the market for non-agency securitizations.

It has been a month since the Federal Reserve Bank of New York began selling off its Maiden Lane II (ML II) BWIC list.

Fitch Ratings is finalizing its new model framework for determining loan losses on pools of U.S. prime residential mortgage loans, which includes several important updates. Chief among them is the application of a proprietary sustainable home price model (SHP Model) that measures a property's current price against its sustainable value. The SHP model allows Fitch to take a forward looking, countercyclical view on the potential for negative equity, which has shown to strongly influence borrower default behavior.

The Securities and Exchange Commission's (SEC) proposal issued May 18 to implement rules mandated by the Dodd-Frank Act tasks rating agencies with measures most have sought to address, but the proposal's detailed requirements could instead overwhelm smaller agencies.

Mortgages are heading into the summer months in good shape technically. Prepayments are also expected to remain benign unless mortgage rates drop substantially lower.

Vendors anticipated hearing May 27, the Friday after ASR's deadline, whether they could bid on the contract to build and operate a repository to collect and make available data for loans backing European RMBS, a project several steps ahead of a similar effort in the U.S.

Mortgage lenders and consumer advocates — two lobbies usually busy opposing each other — have joined forces to urge regulators to ease up on proposed risk retention requirements, arguing they will result in a credit crunch.

Refinancing waves sparked by falling interest rates have long been a mixed blessing for all involved. The consumer lowers his/her monthly payment, but often pays fees and signs mounds of paperwork. Banks reap profits from originating the new loans, and their salespeople rake in commissions. But banks and mortgage servicers also lose customers in a refi wave. And the investors in mortgage-backed securities get their principal back sooner than expected, and must redeploy it in a lower-rate environment.

Walter Investment Management Corp. closed the private placement of around $81 million of its Class B secured notes issued last Nov. 22 in a deal called Mid-State Capital Trust 2010-1.