We are providing live updates to today’s S&P webinar: Is the Housing Market Bottoming Out? I’m Jim Henry posting this on behalf of Lisa Sarajian.
To join the webinar click here. If you have any questions feel free to ask in the comment section below. We will be addressing these throughout the week.
Question-Lisa Sarajian: Last week you published a report titled “Posiitive Housing News Could Help a U.S. Private Label RMBS Revival.” What are the key highlights from the report?
Answer- Erkan Erturk:
The future of private housing finance is still unclear. Treasury’s white paper on housing finance came out last year and FHFA’s proposed plan on GSEs came out late last month. The transition to privatization will be slow and private-label RMBS will ultimately and slowly come back. At the end, the mortgage market is likely to smaller.
We have seen a few private-label RMBS transactions in the market during the last few years, but the sector’s revival is still several years away–and relies on more than just a turnaround in the housing market, but positive housing news could be just the starting point for a recovery.
Since the downturn began in late 2007, GSEs (Freddie and Fannie) have controlled roughly 95% of total mortgage loan originations and generated nearly 100% of RMBS new issuance and now account for 55% of the total roughly $10.3 trillion in U.S. residential mortgage debt outstanding.
Reintroducing private capital to the residential mortgage sector will take time. A weak housing market does not help, since the shift from government-to-private could hurt the availability of credit, home prices and delay the housing market recovery.
Question-Lisa Sarajian: Why Should The Private-Label RMBS Market Return?
Answer- Erkan Erturk:
We believe there is a strong desire by policymakers and market participants to privatize housing finance and reduce the influence of Fannie and Freddie over time, private-label RMBS provides an alternative to agency mortgage securities.
Private-label RMBS would also increase the diversification of funding sources and expand the pool of both investors and funds. In addition, private-label RMBS provides a platform to finance 30-year fixed mortgages by matching the terms for assets and liabilities.
In conclusion, we believe the private-label securitization market has a place in housing financing and will eventually and slowly return, but as one of many funding sources.
Covered bonds are also likely to be one of the future alternatives for housing finance in the U.S.