The big post-financial crisis questions about the residential mortgage-backed securities sector market participants expected would be addressed by now still hang in the balance, said panelists participating in the Future of U.S. Mortgage Finance discussion session Monday.
“I feel like this should be called the Groundhog Day panel,” quipped Jeremy Diamond, managing director at Annaly Capital Management. “The situation is still the same, and this time next year will probably look a lot like it does now.” Diamond pointed to a “blizzard of white papers” and housing policy bills in Congress being positives for the sector, even if the markets continue to await absolution. “Hopefully it will move from ideological to a practical phase,” he said.
In lieu of solutions, participants have to grapple with existing supply and demand issues before any measurable headway will be made. “We’ve got to begin with shadow inventory,” according to Laurie Goodman, senior managing director at Amherst Securities Group. Goodman underlined the contradiction of an 800 million-unit gap in supply and demand while other market factors look favorable. “Primary mortgage rates are at their lowest levels since 1960. So if affordability is so great, why is housing in the doldrums?” she posited to the panel.
“We need principal modification to decrease the supply of homes on the market, even when controlling for pay relief and payment modification,” Goodman offered as a possible solution. “We’ve also got to increase demand, introducing bulk sales, or sales to investors—a very likely solution,” she said.