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Wells Fargo has agreed to pay the U.S. government $1.2 billion for hiding most of its bad loans in the years leading up to the 2008 housing market crash, CNNMoney.com reported on Friday. The bank admitted it certified that thousands of faulty home mortgage loans were eligible for Federal Housing Administration insurance. When the market crashed in 2008, American taxpayers ended up on the hook for the bad loans. "Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust," U.S. Attorney Preet Bharara said. Many of these loans were made to families who didn't really qualify for them and later lost their homes. A federal judge approved the settlement on Friday, and the Department of Justice claimed a major victory. In a statement, Wells Fargo said that the settlement resolves "potential claims going back as far as 15 years" and lets the bank "put the legal process behind us."

Fitch Ratings said that defaults on commercial mortgage-backed securities declined for the fifth straight year in 2015, National Mortgage News reported yesterday. The annual default rate fell to 0.4 percent last year, after peaking at 4.1 percent in 2010. The cumulative default rate for CMBS fell to 13 percent from 13.3 percent in 2014. In total, 181 loans defaulted with a balance of $2.7 billion in 2015, compared to 294 loans totaling $3.9 billion in 2014 and 353 loans totaling $5.4 billion in 2013. Most of the new defaults came from the 2005-2007 period when CMBS originations peaked.

Melvin L. Watt, the director of the Federal Housing Finance Agency, is nearing a decision over whether to allow struggling home borrowers in the U.S. to reduce their mortgage balances, an issue that has dogged the regulator since the end of the housing crisis, Bloomberg News reported yesterday. An announcement from the FHFA, which oversees mortgage giants Fannie Mae and Freddie Mac, is expected to come in the next 30 days, Watt said. Any policy will require a “win-win” strategy for eligible borrowers and for the taxpayer-backed enterprises, he said, noting that it’s still possible they take the option “off the table entirely.” Watt, who was appointed to the FHFA by President Barack Obama at the behest of borrower and affordable-housing advocates, has been enmeshed in the same debate that followed his predecessor, Edward J. DeMarco. DeMarco resisted the idea of debt reductions on grounds that they would cost taxpayers. 

JPMorgan Chase & Co. is trying to sell new securities that would pass along most of the credit risk on $1.9 billion in mortgages, in an attempt to revive a debt market that has been largely left to the government since the financial crisis, the Wall Street Journal reported today. The largest U.S. bank by assets is expected to price the residential mortgage-backed deal over the next two weeks. J.P. Morgan would hold 90 percent of the deal by keeping the safest parts, or the most senior tranches, and plans to sell off the riskier pieces to investors. Banks issued trillions of dollars worth of bonds backed by home loans in the years before the financial crisis but have had trouble winning over investors burned when the market crashed. Financial institutions issued $61.6 billion in private mortgage bonds in 2015, up from $54.1 billion in 2014 but a fraction of the $1.19 trillion issued at the peak of the housing boom in 2005, according to data from trade publication Inside Mortgage Finance.

The market for commercial mortgage bonds has weakened significantly since the beginning of the year, raising questions about the ability of borrowers in certain parts of the country to refinance billions of dollars of maturing loans on office buildings, hotels and shopping centers, according to a NationalMortgageNews.com yesterday. While securitization accounts for between 20 percent and 25 percent of all commercial real estate lending, or roughly $100 billion a year, properties in secondary and tertiary markets are largely dependent on it for financing. The risk premiums that investors are demanding on commercial mortgage bonds have increased dramatically. The senior, triple-A rated tranches issued by conduits are now paying 165 basis points over the swaps benchmark, versus 105 basis points six months ago, according to Kroll Bond Rating Agency. Spreads on tranches with the lowest investment grade ratings, triple-B-minus, are paying a whopping 775 basis points over swaps — a level comparable to junk-rated corporate bonds. Six months ago, triple-B-minus tranches traded at a spread of just 400 basis points.

U.S. authorities have decided not to pursue criminal charges against any Citigroup Inc. executives or employees involved in packaging and selling mortgage-backed securities at the heart of the 2008 financial crisis, Reuters reported yesterday. The decision, which followed Citigroup's $7-billion settlement in 2014 resolving federal and state civil claims related to mortgage bonds, was described in a November report obtained by Reuters in response to a Freedom of Information Act request. Its release marked the first public acknowledgement by U.S. authorities that executives at a major bank linked to the financial crisis would face no criminal charges for their involvement in selling billions of dollars of toxic mortgage bonds. The report, by the Federal Housing Finance Agency's Office of Inspector General, one of the agencies in the Citigroup probe, said following the settlement, prosecutors reviewed the evidence to see if any individuals could be charged and determined "there was not enough compelling evidence."

Oversight of the four largest mortgage servicers' compliance with the national mortgage settlement is officially over, according to the watchdog overseeing the process, NationalMortgageNews.com reported yesterday. Bank of America, Citigroup, JPMorgan Chase and Wells Fargo met all requirements of the settlement's servicing standards at the end of the third quarter, said Joseph A. Smith, the settlement's monitor. Smith filed his final compliance reports yesterday with the U.S. District Court for the District of Columbia for the four banks, officially marking the sunset of rules for the $25 billion settlement. The servicers signed the settlement in March 2012 with federal regulators and 49 state attorneys general after the discovery of widespread "robo-signing" of foreclosure documents.