Private capital seeks to step up its game as GSE reform gains momentum
With prospects for government-sponsored enterprise reform improving, players in the private residential mortgage-backed securities market are starting to think about how they could better compete against the GSEs while awaiting change.
One way the private market could improve its ability to compete would be if it could improve its efficiency without taking too great a toll on loan quality, panelists speaking at the Mortgage Bankers Association's National Secondary Market Conference said Sunday.
"It's so much easier to deliver to the GSEs," noted Liam Sargent, global head of asset-backed and nonagency mortgage trading and syndication for JPMorgan Securities, and head of capital market and home lending for Chase.
Efficiency has been challenging in part because ever since the bursting of the housing bubble decimated the performance of precrisis securities, post-crisis players have had to focus more on quality to the exclusion of almost all else to win back investors.
"It's hard every single day, that's why I think a lot of people don't do it," said Matthew Tomiak, managing director, structured finance, at Redwood Trust.
But Sargent is starting to wonder if the PL RMBS market has matured to the point where it could gain more efficiency by relaxing its due diligence slightly.
Although the market remains much smaller than it was during the housing bubble and it also still is dominated by certain players, it has become more established, with representatives of both banks and nonbanks active in the sector.
If this more established market could, for example, prudently relax its 100% due diligence reviews, it might be able to operate more efficiently and expand, said Sargent.
"We have to get to sampling," he said.
However, all the panelists noted that they are wary of taking their eyes too far off the ball when it comes to quality.
"I don't think any of us wants to go through 2008 again," said Eric Kaplan, a director at the Milken Housing Finance Institute's Center for Financial Markets.