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News: Treasury Calls for Change in Private-Label Securities Markets
By Clea Benson and Jody Shenn | March 06, 2014

http://www.businessweek.com/news/2014-03-06/treasury-calls-for-change-in-private-label-securities-markets

Reforms to make private-label mortgage securities markets more standardized and transparent should begin immediately, the senior adviser to the U.S. Treasury on housing policy said.

Lack of trust between parties has caused the market for securities that aren’t backed by the U.S. to come to a “virtual stand-still,” Michael Stegman said in remarks prepared for a speech in New York today.

“The best time to do the heavy lifting required to re-start the PLS market is when other channels provide more favorable execution,” Stegman said in remarks prepared for a securitized products conference. “So that when the tide turns, the PLS market will be ready to intermediate between the originators of mortgage credit and those who want to invest in mortgage credit.”

While issuance of non-agency securities tied to new loans jumped to $13.4 billion last year from $3.5 billion in 2012, the sales collapsed after September, according to data compiled by Bloomberg. Less than $1 billion of the deals were completed from October through December, and less than $1 billion so far this year, the data show.

Banks’ demand for loans for their balance sheets and bond investors’ desire for higher yields after record defaults are helping to curb issuance along with a slump in new loan volume sparked by a plunge in refinancing amid higher interest rates.

Though standardization is desirable, the U.S. shouldn’t mandate it, Stegman said.

“We are not advocating a one-size-fits-all solution,” he said. “We recognize that mandating a single standard may discourage innovation down the road.”

To contact the reporter on this story: Clea Benson in Washington at [e-mail]
To contact the editor responsible for this story: Maura Reynolds at [e-mail]