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48 U.S. CAN WITHHOLD SOME DOCUMENTS IN GSE LAWSUIT e U.S. government won a small victory in appeals court on January 30 following a ruling narrowing the range of documents they must turn over to investors currently suing them over its seizure of Fannie Mae and Freddie Mac. e Federal Circuit Court of Appeals said four documents could be withheld from Fairholme Funds and other investors on the basis of presidential privilege, and four other documents were protected by privilege of the deliberative process. Eight other disputed documents were declared not privileged by the court. Fairholme is suing the government over its August 2012 decision to seize the profits of the two GSEs, which they called an unconstitutional taking of private property. Judge Margaret Sweeney of the U.S. Court of Federal Claims previously ruled 58 documents sought by Fairholme Funds should be released. Following the ruling, 50 of those documents "merit no privileged treatment" and will still be made available. Investors Unite, a coalition of private investors invested in the GSEs, issued a statement Monday praising the court's decision to make most of the documents still available. "e Appeals Court ruling stems from a writ of mandamus the government filed in October after Sweeney issued a sharp rebuke of the government's efforts to claim the documents sought were 'privileged' information," Investors Unite said in their statement. "In this and other rulings, she has methodically chipped away at claims of executive privilege. "Until the 50 documents cleared for review by Fairholme's attorneys are made public we can only speculate as to their exact content, but the fact that the Appeals Court stood with Sweeney on 86 percent of the documents is a positive sign for shareholders seeking justice," they said. "We could learn more should Judge Sweeny request the government to revise its privilege claims." Investors Unite's statement said despite the court's decision to make 50 of the documents available, there remains 11,000 more yet to be released. "e fine points of Constitutional law concerning executive privilege notwithstanding, the more straightforward question that must be asked repeatedly is this: Why would the government be trying so hard to keep so many documents so secret five years after the Sweep, especially if there were no national security matters at stake? Each procedural development moves us close to an answer on that." NONPRIME RMBS ISSUANCE GATHERING STEAM Non-prime residential mortgage-backed securities (RMBS) transactions are making a comeback of sorts and are projected to grow more rapidly in the long term, according to a new report from Fitch Ratings titled "e Return of Non-Prime U.S. RMBS." According to Fitch, in the last 18 months there have been 10 non-prime RMBS transactions worth more than $1 billion each from five issuers—and Fitch projects the number of non-prime RMBS issued to double over the next year. "Growth in U.S. Non-Prime RMBS is expected as an increase in interest rates will redirect some lender focus from prime refinances to non-prime, and successful securitizations provide visibility and incentives for potential issuers," said Managing Director Grant Bailey. "But legislative, regulatory and market changes will limit non-prime RMBS to a very small share of the total U.S. mortgage market." Fitch noted that the nonprime RMBS transactions has come with some key improvements over the one from a decade ago that precipitated the financial crisis. Perhaps the most noteworthy changes since then are the Ability-to-Pay rule and risk retention, thus mitigating a number of pre crisis risks— for instance, the changes held lenders more accountable for making bad loans. Other key changes include increased third-party due diligence and fraud risk controls. Despite the projected growth of non-prime RMBS, Fitch said a repeat of the 2008 crisis is not in the cards. e company noted that in the years immediately prior to the crisis (from 2005 to 2007), approximately $60 billion in Alt-A and subprime RMBS were issued per month (totaling approximately $2 trillion). "Even assuming rapid growth, volume in 2017 will remain less than 1 percent of peak- vintage volume," Fitch stated in the report. "Legislative, regulatory and market changes will limit non-prime RMBS to a very small share of the total U.S. mortgage market." According to Fitch, however, the uncertainty over borrowers' credit behavior remains a chief concern. "Early non-prime RMBS performance has been very good, though borrowers in these programs are expected to default at higher rates and will be more vulnerable to economic stress than prime borrowers," Bailey said. "What's more, limited performance history for borrowers with recent major credit events plus the lack of precedent on how courts will interpret the ATR rule adds uncertainty to projections."

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