May 2016 - Rise and Fall

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62 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SECONDARY MARKET LOCAL EDITION JPMorgan Chase Prepares $1.9 Billion MBS Deal JPMORGAN'S LATEST MBS DEAL WILL BRING MORE PRIVATE CAPITAL TO THE HOUSING MARKET, REDUCING THE RISK HELD BY TAXPAYERS. NEW YORK // JPMorgan Chase & Co., is preparing to sell a group of mortgage-backed securities worth nearly $2 billion, the company confirmed to MReport in March. This credit risk transfer is expected to reduce the risk borne by U.S. taxpayers and bring more private capital back into the mortgage market. In ad- dition, this transaction will help restore private-sector securitiza- tion, a necessary component of the broader recovery of the U.S. housing system. According to Wall Street Journal writer, Emily Glazer, the bank is expected to price the residen- tial mortgage-backed securities deal over the next two weeks. JPMorgan Chase would hold 90 percent of the deal by holding the safest parts and selling off the riskier pieces to investors, she wrote. "The new deal is JPMorgan's first 'house transaction' since the financial crisis, meaning it is entirely backed by mortgages the bank owns," Glazer said. "The pool includes a mix of more than 6,000 mortgages, both newer and refinancings, around 75 percent of them conforming with the underwriting standards set by Fannie and Freddie." A poll released by U.S. Mortgage Insurers (USMI) found that the nearly half of Americans, or 49 percent, believe that the government is not doing enough to prevent another taxpayer-funded bailout of Fannie Mae and Freddie Mac, and also that the private sector should bear most of the risk on mortgage loans that default. Likewise, a majority of the respondents (48 percent) believe that the private sec - tor should bear the risk for the responsibility on mortgage loans that go bad. Nineteen percent said borrowers should shoulder the losses, and 12 percent said it should be the government. More than half the survey's re - spondents (54 percent) said they would support legislation requir- ing more private capital, such as additional mortgage insurance, that would reduce the losses taxpayers would absorb should mortgage loans default. Despite these survey results, Fannie Mae and Freddie Mac do appear to be making an effort to perform credit risk sharing transactions with private inves - tors. Fannie Mae has priced lat- est recent credit risk sharing transaction in the Connecticut Avenue Securities (CAS) at $945.1 million, according to an announcement from Fannie Mae. "Fannie Mae continues to focus on the long-term strength and stability of our Connecticut Avenue Securities program," said Laurel Davis, VP of credit risk transfer, Fannie Mae. "We continue to work to build a deeper market for credit risk and are pleased with investor participation in the program. We've built a robust set of credit risk management tools that benefit Fannie Mae and the investors in our credit risk transfers. Fannie Mae will continue to innovate in the credit risk management space so that we can build a better housing finance system for the future." Freddie Mac launched a new asset class with the beginning of the Structured Agency Credit Risk (STACR) series in July 2013 as a strategy for selling credit risk on single-family mortgages to private investors. "By shifting more of our potential credit losses to private investors, we've led the way in transforming how a significant portion of the U.S. housing market is funded," said Kevin Palmer, SVP of Credit Risk Transfer, in a commentary on Freddie Mac's website."This further protects U.S. taxpayers from backstopping GSE credit losses and helps to build a more robust system that can keep overall mortgage rates low, while creating a more sustainable mortgage funding model." Goldman Sachs Pays Big to Settle Fraud Claims THE FIRM ADMITTED TO WRONGDOING IN THE SALES OF TOXIC RMBS PRIOR TO THE FINANCIAL CRISIS AND AGREED TO A $5.06 BILLION SETTLEMENT. In mid-April, investment banking firm Goldman Sachs finalized a settlement first an- nounced earlier this year, stating it agreed to settle federal and state investigations probes con- cerning the sale of toxic residen- tial mortgage-backed securities (RMBS) in the time leading up to the financial crisis. Goldman Sachs agreed to pay a $5.06 billion settlement in regard to its "conduct in the packaging, securitization, marketing, sale, and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007," according to an announcement from the U.S. Justice Department. Michael DuVally, a spokes - man for Goldman Sachs, told MReport, "We are pleased to put these legacy matters behind us. Since the financial crisis, we have taken significant steps to strengthen our culture, reinforce our commitment to our clients, and ensure our governance pro- cesses are robust." In January, Goldman Sachs first stated it came to an agree- ment in principle to resolve the investigation of the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force (RMBS Working Group). According to the firm, the agreement will resolve real claims and any allegations by the U.S. Department of Justice, the New York and Illinois Attorneys General, the National Credit Union Administration (NCUA), and the Federal Home Loan Banks of Chicago and Seattle, relating to the firm's securitiza - tion, underwriting, and sale of residential mortgage-backed securities from 2005 to 2007. "By shifting more of our potential credit losses to private investors, we've led the way in transforming how a significant portion of the U.S. housing market is funded." —Kevin Palmer, SVP of Credit Risk Transfer, Freddie Mac

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