Mitt Romney, the GSEs, and Jumbo MBS

Here's a pop quiz for all jumbo MBS fans: what's the biggest stumbling block to the private label securities market taking off? Answer: the  subordination levels on jumbo deals are about twice what they used to be, which means the credit pendulum has swung overly far to the conservative side. The second biggest stumbling block is an unwillingness on the part of originators to sell their (very) valuable jumbo loans into the secondary market, opting instead for the 'carry trade.' As the presidential election approaches, some mortgage professionals might be asking themselves who's better for business: President Obama or Mitt Romney? It might take an investment banker to 'fix' Fannie Mae, Freddie Mac (and the whole PLS mess) but the two GSEs have never been “private” companies (in the traditional sense), and getting there – without tanking the housing and mortgage markets – is next to impossible. That's what we call a conundrum.