MERS Scores Big Victory from Courts

Score one for “sanity” this week as the 10th Circuit Court of Appeals upheld rulings from three lower courts that MERS, the beleaguered electronic mortgage registry, does in fact have the right to foreclose on properties assigned through the securitization process.

Over the past several years, any number of consumer advocates, including elected officials and other public watchdogs, have painted MERS as a master of evil, contrived by unscrupulous bankers, all for the purpose of stealing homes from underneath poor and innocent consumers. 

We have noted at several times along the way that most of these advocates of course took advantage of the electronic media to reach their constituents and other fans as efficiently as possible while ignoring the fact that the purpose of MERS was essentially to do the same thing for the historically arcane world of mortgage origination, filing and recording by placing these “securities” into a highly efficient and cost-effective data repository.

The arguments against MERS were wrong-headed then and they continue to be in many corners of the court of public opinion.  Nevertheless, as more time elapses from the hysteria associated with the sub-prime mortgage mess, slowly but surely, sounder heads seem to be prevailing.

Good for MERS and good for all those borrowers and their advocates who never understood a good thing when they saw it!  Banks and other lenders cannot generate more mortgages unless they have an efficient market for selling a portion of their loans to secondary investors.  MERS is a key ingredient to that process and one that cannot be restored to the public confidence soon enough in our opinion.

Swiss Re and Credit Agricole Launch First Canadian Life Insurance Backed Securitization

This week brought the announcement that Aurigen Capital Limited, a Toronto-based reinsurer had launched the first ever securitization structured around the embedded value of Canadian life insurance polices.

Credit Agricole Securities and Swiss Re Capital Markets co-managed the placement of the CAD120mm six year notes which were sold under Rule 144-A to a limited number of holders.  Standard & Poor’s rated the notes BBB+.

Despite the broad brushing of the life insurance securitization by several global regulators as an asset class that investors should stay away from, apparently there is a creeping demand for the stuff.  Aurigen Reinsurance issued the notes through a Bermuda special purpose entity named Vecta I Ltd.

Garrett Bill to Aid Private MBS Moves Ahead

Good news yesterday for the private MBS market as Representative Scott Garrett’s Private Mortgage Market Investment Act was passed by the House Financial Services Subcommittee on Capital Markets Insurance, and Government Sponsored Enterprises.

This bill would authorize the Federal Housing Finance Agency to develop standards for mortgage products, repeals the Dodd-Frank Act’s risk retention rule, increases the quality of loan level information and disclosures for investors, removes conflicts of interest between servicers and investors, and prevents regulators from unilaterally forcing investors to reduce the principal of loans in which they have invested.

The closeness of the vote by the subcommittee (18-15) may hide the fact that apparently many legislators on both sides of the aisle agreed on many of the proposed elements.  The biggest bone of contention seems to have been the repeal of the risk retention or so-called skin-in-the-game provision legislated by the Dodd-Frank law.  This publication is already on the record for taking a stand against this arbitrary and totally unnecessary provision and how it probably hurts more than it helps the securitization market for residential mortgages, as well as other asset classes.

The next step for the Garrett bill is the full House Financial Services Committee although, as of today,  no hearing dates have been scheduled.

This is a great leap forward for the restoration of some sanity to the securitization markets.  Hopefully, momentum will continue to build.