There are still a lot of questions about the future of the secondary mortgage market and the excesses from the downturn left to clear. But there was more of a sense at the Mortgage Bankers Association’s conference this year that, despite these outstanding issues, folks are more focused on moving ahead with their business to the extent possible.
Jeff Foster, senior policy advisor, capital markets, U.S. Treasury, closed the final panel of the conference by noting somewhat incredulously that GSE reform didn’t even come up in the question and answer session following the secondary market “hot topics” discussion designed to summarize the issues in the show. Perhaps this was because GSE reform, as he acknowledged earlier in that session, is expected to take so long to occur.
As Ginnie Mae president Ted Tozer put it during an earlier panel on how the government’s role might change going forward: “The issue we have is a very challenged housing market right now.”
Well-regarded veteran Wall Street analyst Laurie Goodman, now a senior managing director at Amherst Holdings, suggested earlier during the show in the discussion about the government’s future role in the market that replacing the GSEs with smaller securitizing entities as suggested under one proposal, for example, would be something that probably would not be able to be implemented until 2017 at the earliest. Goodman also suggested that there is roughly a 25% chance that if the GSEs are profitable they will survive “in some form.”
(Moderator and CoreLogic SVP David Hurt said an agency representative told him that the GSEs could not participate in the panel about the government’s role in the market due to directions from their regulator and the discussion’s “forward-looking” nature.)
Perhaps more so than the GSEs, the No. 1 factor determining the market’s future today is the ongoing search for a bottom to home prices. At least that’s what American Securitization Forum executive director Tom Deutsch put at the top of the list.
But as Foster pointed out, when it comes to all the foreclosures the market is “trying to work through” this also remains a process that is “going to take time.”
There is continued wariness and still some waiting on the part of investors not only because of that question but also because of what CoreLogic’s Brendan Keane refers to continuing concerns about “the sins of the past.” However, there is more progress quantifying these. For example, in a study of loans in the ABX 2007-1 index, CoreLogic found 40%-50% of the properties may have been overvalued by at least 10%, Keane said.
Because of the availability and understanding of the need for due diligence today, “There’s no excuse to put up with the next Taylor Bean,” according to Tom Donatacci, an EVP at Clayton Holdings. As a result of such developments, today in the wholesale, correspondent and warehouse lending businesses, market participants have generally been taking “deep dives” on their counterparties, Donatacci said.
But there is a financial limit to how much due diligence one can do, Deutsch suggested. “You can’t look at every loan,” he said, noting in a question-and-answer session that this is why he believes there is merit to the “qualified residential mortgage” concept. That concept has the potential to effectively, and eventually create “the private-label conforming loan.” But while “there is merit to that,” he also noted that this creates a challenge for those not in that box. The proposed QRM definition, he said, is still too tight.
