BluefoxToday blog : Mortgage securitization becoming more transparent

Mortgage securitization becoming more transparent

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.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 2 commentsEsko Kiuru • September 26 2009 04:38PM


Esko it would be nice to see the investors return, because I don't know how much longer the tax payer can keep on flipping the bill.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 9 years ago


We desperately need the private investor to balance the market and keep the Fed from dipping into our pockets.

Posted by Esko Kiuru about 9 years ago