The residential mortgage-backed security market will reemerge beyond Fannie Mae and Freddie Mac, Lewis Ranieri, the "father" of the trillion-dollar mortgage market, told CNBC on Wednesday.
"We have to, especially if you look at the Treasury plan, the three alternatives to the Fannie, Freddie and FHA are bank portfolios, which is why we created the mortgage security in the first place, 'cause it can't fund housing on a blance sheet because it requires too much equity—you can do some, but you can't do most, Ranieri said.
He continued, "Covered bonds, which really don't work for our type of mortgage in this country, 30-year loans. And the alternative is some form of a securitization, if not Fannie, Freddie, it's got to be a RMBS, we just have to do it better this time."
Securization works pretty well for almost 30 years, he said.
Looking back at the mortgage market, the housing crisis and the recession, Ranieri said, "Starting in late 2002, the RMBS market starts to experiment with structures, not the traditional structures—what they call afforablity products—and they started experimenting with traditions for underwriting apprisals. As a result...RMBS grows almost overnight to be bigger than Fannie, Freddie and Ginnie Mae together," Ranieri said.
"It goes from being 5 percent of the market to basically representing more than anything else, added Ranieri.
by Gennine Kelly CNBC February 23, 2011
New Mortgage-Backed Securities Will 'Be Better:" Lew Ranieri - CNBC
