Tag Archives: MBS

The Federal Reserve will continue its current policy of buying up $40 billion in agency mortgage-backed securities (MBS) and $45 billion in Treasuries per month as long as economic conditions warrant such measures, explained Federal Reserve Chairman Ben Bernanke during a testimony given Wednesday before the House of Representatives Committee on Financial Services. ""I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course,"" Bernanke said.

With a somewhat upbeat assessment of the economy, the Federal Open Market Committee (FOMC) said Wednesday it would continue its policy of near-zero interest rates and its $85-billion-per-month bond-buying program. In the statement issued at the conclusion of its two-day meeting, the committee said it ""sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall,"" a more optimistic assessment than May 1 when the Committee said it ""continues to see downside risks to the economic outlook.""

In a newly published paper posted on the New York Federal Reserve website, Robert Hockett, a Cornell University professor of financial and monetary law, proposes using government's eminent domain authority as a solution to underwater mortgage debt. In reviewing Hockett's suggestion, the Wall Street Journal concentrated not on the idea itself, but on the fact that Hockett ""turns out to have been on the payroll of none other than Mortgage Resolution Partners."" There may be a lot of good reasons to discard Hockett's suggestion, but his past relationships are not among them. His idea deserves a fair hearing, not a digression.

The Federal Housing Finance Agency (FHFA) and Citigroup have reached a settlement over allegations of fraud in the selling of $3.5 billion of mortgage-backed securities (MBS). A filing on Tuesday revealed FHFA had dropped its suit against the bank, having reached a settlement. A spokesperson for FHFA did not comment on the amount of the settlement or the terms, saying that it was ""satisfactory."" A spokesperson for Citigroup remarked only that the company is ""pleased to put this matter behind us.""

U.S. District Judge Jed Rakoff went back on a previous decision to dismiss most of Dexia's claims against JPMorgan Chase in a $774 million suit. In reversing his decision, Rakoff noted that he didn't have the jurisdiction to grant a dismissal in the first place, citing an appeals court decision in a similar case involving American International Group (AIG) and Bank of America. Dexia filed suit in January 2012, alleging it was fraudulently convinced to purchase more than $1.6 billion of securities that went bad.

Flagstar Bancorp, Inc., and MBIA Inc. announced a settlement between the two companies related to transactions on securities that flopped during the housing crisis. Under the terms of the agreement, Flagstar will pay MBIA $110.0 million, an amount ""consistent with [MBIA's] recovery expectations,"" CEO Jay Brown said. Flagstar does not expect any significant financial impact as a result. According to a statement from the company, MBIA will use the cash received to pay a portion of its secured loan from National Public Finance Guarantee Corp.

With an upbeat assessment of the economy, the Federal Open Market Committee voted 11-1 Wednesday to leave interest rates unchanged and to continue its program of purchasing agency mortgage backed securities and longer term Treasury securities ""to maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.""

Fannie Mae and Freddie Mac are at risk of losing billions as a result of fluctuations in interest rates, according to a white paper from the Federal Housing Finance Agency (FHFA) Office of Inspector General (OIG). According to the OIG's paper, an increase of just 1 percentage point in interest rates could cause the GSEs to lose nearly $2 billion in the fair value of their assets. To protect against interest rate risks, the OIG outlined its own suggestions, one of which included the use of derivatives.

Mortgages originated from 2010 and into early 2012 are seeing elevated prepayment rates as low mortgage rates continue to encourage refinance activity, Fitch Ratings explained in a recent report. Despite the high levels of prepayment activity, the rating agency suggested ""the credit implications have been modest to date due to the high overall credit quality of the original pools."" According to Fitch, prime RMBS mortgage pools issued since 2010 had an average conditional prepayment rate (CPR) of about 42 percent.

As the private sector struggles with regulatory uncertainty, Fannie Mae and Freddie Mac will continue to maintain their dominant role in the housing market, according to a report from Fitch Ratings. Since the GSEs act as key players in the market's fragile recovery, political motivation for far-reaching GSE reform has been limited, the rating agency explained. Although regulators and politicians have emphasized the need for the private sector capital to enter the mortgage market, Fitch said ""results have been disappointing.""