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When will the market for mortgage-backed securities sold without the government's guarantee finally revive?
That thorny question loomed over the American Securitization Forum's annual conference in Orlando this year, and for good reason. Mortgage-backed securities used to be a money machine, peaking at nearly $1.2 trillion of securities issued in 2005, according to Inside Mortgage Finance, a trade publication.
After the housing boom turned to a bust, the market cratered. Last year, only about $64 billion in such securities were issued, up from just over $60 billion in 2009, according to Inside Mortgage Finance. Most of those securities, however, were old ones repackaged into new ones, rather than securities backed by new loans.
With the housing market’s future still looking gloomy and government-backed mortgage giants Fannie Mae and Freddie Mac still dominating the market, the future of private mortgage securities remains uncertain.
Many people at this year's conference, held outside Disney World, foresaw a gradual return of the market, but said it would not start until the end of this year at the earliest. By that point, a slew of new regulations for the industry should be in place. And the future of the 500-pound gorillas in the industry – Fannie Mae and Freddie Mac – might be a little less hazy.
“Until the government defines what the government market is, I don't see the prospects,” for the private market to develop, said Kent Smith, a senior vice president at Pimco, the giant bond investor.
One thing did seem clear in Orlando on Tuesday. While the three main credit rating agencies — Moody's, Standard & Poor's and Fitch — will still rate mortgage securities, investors will not rely exclusively on their assessments.
“The number one lesson learned out of this whole crisis was: Definitely do your due diligence,” said Bob Behal, a vice president with Vanguard Group.
A ratings industry executive agreed. “Ratings shouldn't be used as the sole source,” said Douglas Murray, a managing director Fitch Ratings . “We think you should use multiple data sources.”
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The Developments blog features exclusive news, analysis and commentary on residential and commercial real estate from The Wall Street Journal’s real estate bureau. Send tips, comments and questions to developmentsblog@wsj.com.
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