Wednesday, April 25, 2007

'Father' of Securitized Mortgage Market: First Time in History Median Home Price is Likely to Decline

Lewis Ranieri, generally regarded as the "father" of the securitized mortgage market, told an audience at the Milken Institute Global Conference that, in 2007, for the first time in history the median home price in the United States is likely to decline.

He also added that there will be many technical problems in working out problem mortgages, He said the vast majority of problem loans are securitized and that, in the past, problem loans were in individual portfolios. This time around, because of securitization, there are many, many holders of the securities with an interest in a mortgage. This will mean there will be many more parties that will have to agree to everything. In addition, he added, there are more lawyers and accountants in the picture to complicate matters.

He used as an example from the past: when he restructured mortgages with homeowners, he would never send out a 1099 tax form. In current situations, he said, lawyers and accountants want him to send out 1099 tax forms to homeowners who have restructured their mortgages. He asked rhetorically, "You have just restructured a mortgage for people who haven't been able to make their former payments and now you want to send them a tax bill for restructuring?"

He further stated there will be a "political reaction" and he feared that bad legislation could create problems for the entire mortgage sector that are now just limited to the sub-prime area. He fears, for example, that any legislation creating a moratorium on foreclosures would have a chilling effect on the issuance of home mortgages throughout the industry.

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