The Mortgage Securitization Market Is Dead

There’s no demand to buy stocks or bonds backed up by American mortgages.

As long as the mortgage securitization market remains moribund, lenders won’t have money to lend for mortgages.

Currently Fannie and Freddie back up 95% of new mortgage loans, meaning there would be almost no new mortgage loans made if it were not for the government backing them up.

Regulators and politicians are not at a loss however. They have solutions. They want lenders “to have a skin in the game.”

The New York Times reports:

When the mortgage securitization market collapsed amid a flood of defaults and foreclosures — many of them on loans that should not have been made — the cry arose for lenders to have “skin in the game.” To properly align incentives, the argument went, those who make loans must suffer if the loan goes bad.

That principle was enacted by Congress last year in the Dodd-Frank law, but the mortgage industry managed to persuade legislators to insert an ill-defined loophole that would allow at least some mortgage loans — and perhaps nearly all of them — to escape the requirement that banks retain at least 5 percent of the risk.

Now it is up to an unwieldy council of regulators to set the parameters of that loophole. They will do that by defining the term “qualified residential mortgage.” If a loan is a Q.R.M., as bankers now refer to such loans, then it can be sold to investors without the lender retaining any risk.

Much of the banking industry has been pushing for an expansive definition that would leave few, if any, conventional loans subject to the skin-in-the-game requirement. To hear them tell it, there is virtually no way that any bank would make a mortgage loan at a reasonable rate if it had to share in any losses.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (, he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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