A call to regulators to fix rules governing mortgage loans and securitization; corporates should add their voices, too.
In an open letter to US regulators, a group of 52 economists, analysts and investors called for a quick repair of rules regarding originating, selling and servicing mortgage loans. They want the government to save the mortgage market from fraud, which the group feels is contributing to a lack of confidence in the housing market and consequently the mortgage-backed securities market.
To that end, the group, which includes James Galbraith and Nouriel Roubini, is calling for new standards and to have them incorporated into the implementation of Dodd-Frank. For corporate treasury, this is the type of call-to-action worth joining. In particular, investment managers within treasury should consider adding their voices in calling for new standards to improve servicing of loans backing MBS. Otherwise, this once stellar investment asset class will continue to degrade for lack of private label raw material deemed safe for widespread consumption.
In its letter, the group suggests that all agencies concerned and led by FDIC and SEC, “undertake a coordinated rule-making effort now to start the process and then also report to Congress.” This would include developing new standards for the secondary market in mortgage loans that “promote a sustainable securitization market and, in particular, maintain additional ‘skin in the game’ for sellers of loans so the excesses and abuses of the past are not repeated.” The letter was addressed to Fed Chairman Ben S. Bernanke, Treasury Secretary Tim Geithner, the FDIC’s Sheila Bair, as well as the heads of the Federal Housing Finance Agency, the SEC and the Comptroller of the Currency.
Corporate investment managers need places to put their money, particularly places safe from fraud and mismanagement. And while on one hand many in corporate finance are pushing back on parts of Dodd-Frank, like swaps, where they feel it will make hedging more expensive, this is one effort that they can join that will be a certain benefit.