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MBA Launches Effort to Restore Secondary Mortgage Market

It's a concern that's been echoed by more than a few market participants with increasing regularity in recent months: is securitization dead? Where will mortgage liquidity come from going forward? (For those curious on an expert take on the matter, BTW, HW contributor Linda Lowell tackled the subject in-depth within her column in the inaugural issue of HousingWire Magazine -- you can subscribe here). Last week, in a nod to the issue, the Mortgage Bankers Association said it had assembled a task force of MBA members to examine policy options and issue recommendations for the future of the secondary mortgage market, called the Council on Ensuring Mortgage Liquidity. “The next sixteen months will see a wide ranging policy debate focusing on the recreation and redefinition of the secondary mortgage market and the roles that Fannie, Freddie and the Federal Home Loan Banks will play,” said MBA's chairman-elect, David Kittle. “As the national trade association representing the real estate finance industry, we will bring together some of the sharpest minds in the industry to discuss what that market should look like and make recommendations to policy makers on the structure for the secondary mortgage market and the GSEs.” The Council will convene a one-day summit in Washington in mid-November designed to bring together top-level market participants for what is essentially a brain-storming session; the group did not provide details on who would be invited beyond saying the group wanted to hear from "all sides." The move by the MBA comes well in the wake of a similar effort by the American Securitization Forum, which said in mid-July it had formed an initiative it calls Project RESTART -- or the Project on Residential Securitization Transparency and Reporting. The group's work under RESTART is aimed at restoring investor confidence in the ABS/MBS markets and bringing capital bank into the space. Central to the new initiative is the development of a set of industry-standard transparency, data and diligence standards for residential mortgage backed securities offerings; while RMBS is the initial focus of the collaborative effort, ASF officials said at the time they expect the initiative to extend into other major asset classes over time. Concern over the future viability of securitization, and the liquidity it brings to the mortgage market, are very real ones -- and issues that seem to have been relegated to the back burner in recent months. HW has repeatedly covered the import of current deliberations surrounding proposed changes to accounting standards that would effectively remove existing language that allows the off-balance sheet treatment of securitizations. Read HW's coverage of securitization issues here. Analysts have suggested that as much as $5 trillion would need to come back on the balance sheets of various financial institutions as a result of the proposed changes, tentatively “effective at the beginning of each reporting entity’s first fiscal year that begins after November 15, 2009,” according to a statement provided by the Federal Accounting Standards Board. All of which would force massive core capital needs at a time when liquidity is, at best, an endangered species; at the very least, regulatory capital ratios would come under severe stress. And, of course, the changes would likely severely limit securitization activity going forward, as well.

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