Lack of sufficient data to the context of the current mortgage market as well as the continuing lack of certainty when it comes to government oversight and involvement in housing finance are preventing it from moving forward, speakers at a recent SIFMA event said.
The market “hasn't had the ability to evaluate credit in recent times,” said David Lukach, partner and head of the U.S. structured finance group at PricewaterhouseCoopers LLP, told attendees at a recent SIMFA housing finance and securitization meeting.
Until some history in the current credit environment has been established “people are going to be relatively conservative,” Lukach said.
Market participants generally remain more comfortable in investing when they have quantitative data that establishes a sort of performance track record for whatever they are buying, even with the recent inordinate downturn belying that comfort and all those statements about past performance not being a guarantee of future results out there.
Government officials seeking to build the consensus and comfort with their proposals needed to reduce uncertainty might want to pay attention to this market psychology and provide some on numbers on the possible effects of proposals currently being floated that have been lacking, another speaker's comments at the event suggest.
“There is a lot of change on the table but quite frankly there has been relatively little...analytical material [related] to...what the impact might be with respect to all of these proposals,” Kent Colton, senior fellow, Harvard Joint Center for Housing Studies and president of The Colton Housing Group, said during the meeting.
He said this is lacking particularly in terms of the possible effects on homeowners and renters, “the people that are out there [who] are actually going to be impacted.”
While there has been a lot of action that seems to be designed to “punish everyone who needs to be punished” for the recent downturn, Colton said he feels, “There is nobody...saying, 'Where should the housing finance system and securitization be going in the United States?' in a big picture sense.”
While concrete numbers would be more helpful, it is fair to say at this point that anecdotal evidence suggests the lack of certainty when it comes to the housing finance system's future regulatory framework is discouraging some would-be participants in the housing finance system's future from getting involved.
At least one private equity player that had been considering setting up a mortgage banking shop said he decided not to because of this uncertainty, Richard Dorfman, managing director, head of securitization at the Securities Industry and Financial Markets Association, said during the conference.
A commitment to the to-be-announced market, which some government-sponsored enterprise reform proposals may affect, could help provide more certainty, suggested Eric Belsky, executive director at the Harvard Joint Center for Housing Studies.
“You have got to build on something that is working,” he said during the meeting.
While data can help provide certainty, it is not always essential, other comments by Belsky suggested.
He noted that examinations of traditional underwriting standards aimed at finding the origin of those standards, for example, found that they are “not particularly analytically based.
“But they worked,” he said.
