A major investor explains that the market wants to return to mortgage securitization and won't demand very high interest rates
If changing the status quo was easy, it wouldn't be the status quo. This explains the challenge facing housing finance policy reform. Currently, the government backs around 90% of new mortgages. The only way for this to change is for the government to actively step back and allow the private market into the game. This was an important takeaway from a Senate Banking Committee hearing on Thursday that focused on housing finance.
As always, there was a cross section of experts testifying at the hearing. Real estate industry lobbyists and affordable housing advocates made up four out of the six witnesses. Unfortunately, it's hard to treat them as credible witnesses, since they are hopelessly biased in favor of keeping the government's huge role in housing left intact. That way, as many mortgages as possible can be issued, no matter the consequence to taxpayers. The other two witnesses, however, represented the market. One, in particular, explained that the private sector can and would return to housing finance if the government allows it to do so.
Margin S. Hughes is the President and CEO of Redwood Trust, a firm that sponsors and invests in residential mortgage securitizations. Why should we listen to what he has to say? In April 2010, his firm sponsored the first and only private residential mortgage securitization deal since the financial crisis wrecked the market in 2008. They sponsored another deal in March and are planning two more this year. While academics and policy wonks can debate the pros and cons of government intervention in the mortgage market, Hughes has seen its effect firsthand and lays out the necessary steps to bring back the private market.