Credit Access Affected by Diminishing Private-Label Securities Market

A diminishing private-label securitizations market among strong government-backed loans presents credit implications for the mortgage market.

Director of the Housing Finance Policy Center at the Urban Institute Laurie Goodman highlights in a blog the importance of consumers knowing how the disappearance of the private-label securitizations market affects their access to credit.

Goodman also explains that if government-backed securitizations continue to dominate the market, the impact could affect credit availability for all consumers, even those with high net worth and excellent credit and those in expensive areas in need of jumbo loans.

A healthy mortgage-backed securities market consists of ample money on hand for lenders to originate new loans, but today's market is nothing like this.

The $718 billion 2007 private-label securities market fell dramatically to $59 billion in 2008, and it has not been above $64 billion since then.

Today, the GSEs and Ginnie Mae are the only companies securitizing loans in large numbers. The GSEs typically attract high quality, less risky loans within their limits, while Ginnie Mae mostly caters to minorities and first-time buyers.

"Mortgage money is flowing reasonably well to some potential borrowers—those with high-quality, low-risk loans that meet the GSE size limits and minority and first-time homebuyers who qualify for FHA lending," Goodman wrote. "And because banks are lending to their best customers, mortgage money flows well to borrowers with pristine credit seeking jumbo mortgages."

Borrowers that don't meet government guidelines and have less than perfect credit are currently locked out of lending as the private-label securities market disappears, according to Urban Institute. Meanwhile, in the future, borrowers with high net worth and perfect credit and those in expensive areas who need jumbo loans could be affected by this falling market if banks retreat further from holding mortgages before this market restarts.

"The loss of the private-label securities market could render mortgage securitization an exclusively government-sponsored activity and lock borrowers who need larger loans or have less than pristine credit out of lending," Goodman stated.

Click here to read the complete blog.