Mortgage Industry News

by Ruth Lee

Lawmakers, consumer advocates, politicos and agenda driven bystanders are all weighing in on the efficacy and relative value of the two investor giants in the market.  Lawmakers cringe at the shared liability and risk exposure of the taxpayer.  Consumer advocates want the GSEs to focus more on rental housing.  Politicos want to assess the two GSEs with blame for every conservative, liberal or otherwise economic misstep since the collapse of the market.  First, I would argue that most of these guys have a murky (at best) understanding of what they both do…and second, I think that this base misunderstanding could serve to completely destroy the housing industry if acted upon.

The GSEs don’t make mortgages.  The GSE fund mortgages.  Back in the “old days,” if you wanted $5K to buy a house, you would go to your local bank, thrift or savings and loan.  They would lend you $5K for thirty years.  They usually wanted a maximum LTV of 80%.  You would participate in the risk with your local banker.  When housing prices started hitting the stratosphere, a lot of local banks found that they just didn’t have that kind of money to tie up for 30 years potentially.  So… the GSEs were created to fund those loans through securitization and investment.  As part and parcel of that discussion, it also required some standardization, like AUS.

Perhaps there is a burgeoning private market for securitizing mortgages.  Perhaps they all have a fundamental working knowledge of how to underwrite the risk, leverage the volume and inveigh investor confidence…but I sincerely doubt it.  We struggle to push perfectly standard, qualified jumbo securitizations out in this market at any LTV or FICO.

Save us from the best intentions of ideologues and polemicists… they know not what they do.