The devil is in the mortgage finance reform details

The devil is in the mortgage finance reform details

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Current subprime bond yields impede private-label RMBS

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Legacy assets held by major lenders are trading so well on bond markets, the economics aren't right to issue new mortgage-backed securities from a yield perspective, according to the chairman of the American Securitization Forum. "There are 6% to 8% yields in the legacy subprime market, that's nonagency MBS, loss-adjusted yields," said Ralph Daloisio, also managing director at Natixis. "There is no economic incentive to generate a primary mortgage market." Daloisio said it appears the Obama administration is using the government-sponsored enterprises as a chief housing policy tool. The GSEs finance more than 90% of the nation's mortgages, and this may also have a systemic impact on the reformation of a private-label securitization market, he added. Nonetheless, this scenario is more or less obvious to secondary market players. "The market sees through the strategy, it sees the 'kick-the-can approach,'" Daloisio said, warning, "We may meet fate on the road we took to avoid it." A prior panel at the ASF annual meeting in Washington, D.C., said mortgage bond markets, as a whole, rallied from March 2009 through March 2011, but investors have since grow bearish on continual negative numbers concerning home prices. Write to Jacob Gaffney. Follow him on Twitter @jacobgaffney.

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