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Investments

Experts pitch solutions for private capital comeback

Mortgage investment experts — who have been sidelined since the housing collapse in 2008 — took a stand Wednesday, claiming they're ready to get back into the private capital game. 

Panelists pitched various solutions to bring private investment capital back into the market to members of the House Financial Services Committee—perhaps even getting back to the heyday when private issuers sold more than $3 trillion in mortgage-backed securities between 2002 and 2007.

Martin Hughes, CEO of Redwood Trust (RWT) — one of only a handful of private issuers in the game — suggested the creation of a Private Market Advisory Committee, which would be spearheaded mostly by investors, with the responsibility to establish best practices in representations and warranties as well as other key securitization terms. 

"The standards would not be mandatory, but each securitization must clearly disclose any variation from the standards," he said.

Additionally, Hughes proposed another hike in guarantee fees that Fannie Mae and Freddie Mac charge as well as reducing the government-sponsored enterprises' conforming loan limits. 

On a similar note, Chris Katopis, executive director of the Association of Mortgage Investors believes raising g-fees to market levels will help attract private capital through crowding in.

"This is necessary – but not sufficient – to get private capital into the market in greater size than it is right now," Katopis said. 

Another inducement to bring private capital back into the market is removing the uncertainty caused by pending regulations by requiring that the unfinished rules that are past deadline must be issued within four months or be subject to a four-year moratorium.

"This would provide certainty in the form of final rules or the status quo for a long period of time to allow a private MBS market to develop," Hughes explained. 

In general, all panelists firmly believed that the private secondary mortgage market could grow quickly to provide liquidity to a very large share of the market if the needs of investors are met and the government gives the private market room to grow.

However, there are many obstacles to the return of private mortgage capital, specifically the inability to compete with the government.

In terms of competition, private investors in MBS are crowded out by the government to a large degree — roughly 95% of the market is controlled by the GSEs and Ginnie Mae

"Between quantitative easing and government pressure for lower lending rates to spur economic growth, private capital simply cannot compete at these credit spreads," Katopis said. 

Even through all this uncertainty, mortgage investors believe that the effectiveness of the capital markets can be restored by enhancing the transparency around regulatory structures, standards and systems.

"With appropriate standards and rights for the holders of asset-backed securities, securitization would achieve the goals sought by many — the more efficient funding of capital markets, lessening volatility, and the resulting better economic activity," Katopis concluded.

cmlynski@housingwire.com

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