Christopher Whalen, senior managing director of Tangent Capital Partners, is confident home prices will head back downward and he seems to indicate that big banks won't be able to handle the shock.
And he's not the only one going out on a limb at HousingWire's REthink Symposium under way in Florida.
The economic stalwart gave a presentation on big banks' role in mortgage finance. He added to what most REthink symposium speakers are stating: Big banks want out of the mortgage business.
"The banks are being really strangled. It's hard for them to create assets, and their savers have seen income evaporate," he said. In short, there's no more money in mortgages at these interest-rate levels.
But there is a great deal of risk, primarily in compliance and burdensome regulation, something banks can't monetize. Private-label securitization is "running off with no new net origination," Whalen said, adding the state of real estate lending makes him feel depressed.
Earlier, speaker Bill Dallas of Skyline Financial, a smaller originator in California, said that the opportunity for lenders to originate mortgages is coming soon. "Timing is everything," he said. "Mortgages will soon be able to be commoditized."
The one question overhanging the conference is who will pay for the financing of these mortgages. Dallas uses institutional investors, but adds that real estate investment trusts won't likely become a force in originations. He said legacy assets would continue to dominate activities at the big banks.
Whalen said he would not be surprised to see rescission from banks to mortgage bond investors.
"Will banks have to buy back these bonds?" Whalen asked. "It's a scary thought."