Counselor to the Treasury Secretary Discusses "Reigniting the Private Label Mortgage-Backed Securities Market"

Counselor to the Secretary of the U.S. Treasury Department ("Treasury") Dr. Michael Stegman delivered remarks regarding Treasury initiatives to facilitate the development of market standards and practices for a sustainable private label mortgage-backed securities ("PLS") market.

According to Dr. Stegman, securitization has played a valuable role historically in housing finance. By allowing interest rate and credit risks to be allocated among different investors, Dr. Stegman explained, credit was expanded for many credit-qualified Americans. Dr. Stegman mentioned the Consumer Financial Protection Bureau's Ability-to-Repay and Qualified Mortgage standards, the credit risk retention rule, and other initiatives as evidence of progress toward improving the PLS market. Additionally, he praised the SEC's recent finalization of Regulation AB II, calling it "headway toward improving transparency in the PLS market."

Dr. Stegman explained that, if done in the correct way, "non-agency securitization has the potential to expand access to credit and offer more efficient pricing to creditworthy borrowers while providing pricing discipline to the market as a whole," as well as to "reduce the concentration of mortgage risk within the banking system and in other government-supported channels."

He went on to mention the "big stumbling blocks" in the way of restoring a healthy nongovernmental guaranteed securitization sector: (i) the current market conditions and the economics of securitization favor whole loan trading and retention in portfolio rather than pooling and securitizing, and (ii) the lack of trust between institutional investors and their consequent unwillingness to buy more senior tranches. He explained that Treasury's initiatives are aimed at helping market participants address these structural impediments.

See: Dr. Stegman's Speech.