The U.S. housing industry is very dependent on how the secondary mortgage market is doing. That's where a large share of mortgage-backed bonds generated here are traded. In the recent past the private investor class purchased about 60% of the home loan paper for sale, the rest mostly being gobbled up by Fannie Mae and Freddie Mac. Now, after the angry tsunami swooped in a few years ago to decisively maul the real estate market, the private sector has all but disappeared from the scene. It's licking its wounds while trying to deal with the losses the devastation left behind.
The mortgage regime would have been severely handicapped had the Fed not moved in to fill the void. It's presently providing the liquidity that the limping housing sector sorely needs to function as well as can be expected under the circumstances. But the Fed can't be the solution for ever. The private investor has to return and again make a meaningful mark there.
The American Securitization Forum, or ASF, is doing something that will help convince them to look at mortgage paper again. ASF is a trade group for investors, issuers and servicers in the securitization business. It has created LINC, or Loan Identification Number Code, a 16-digit number that'll identify the mortgage loan type, its origination date and country of origin.
The purpose of LINC obviously is to provide more transparency to a skeptical investor about a particular mortgage product he might be interested in. As the home loan crisis unfolded the investor class quickly learned that what disclosures they were given didn't often match the reality. They were badly burned and prefer not to be sorry victims again.
Only time will tell how effective LINC will be in winning over the potential mortgage securities buyer. It'll at least be a step forward in the effort to draw him back in. The U.S. taxpayer should keep an eye on this because the Fed is really using his money to replace, hopefully temporarily, the no-show private mortgage player.