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Ramp up housing credit or foreclosures will double, mortgage pioneer warns

Posted by Scott Van Voorhis February 24, 2011 09:08 AM

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It's a timely warning from a rather interesting source, to say the least.

Lewis Ranieri, the pioneer or godfather, if you like, of the private mortgage-backed securities market, contends the already record number of foreclosures could double if housing credit gets tighter than it already is. (He's credited with helping invent mortgage backed securities back in the 70s while working for Salomon Brothers.)

Ranieri's comments were directed at the Obama Administration's recently unveiled proposal to start raising fees charged by federal mortgage giants Fannie Mae and Freddie Mac. Since the global financial crisis in the fall of 2008, the twin behemoths have controlled the vast majority of the secondary market after an exodus by private investors.

While the administration hopes to ease the government out of the secondary mortgage market and bring in private capital, the tightening up of credit by the feds during the transition could tear the already troubled housing market "apart at the seams," Ranieri warns.

It is part of a larger, mortgage market overhaul that could see 20 percent down payments become the norm again as well.

This move by the government to tighten credit will make it harder for individual buyers and investors to snap up all those foreclosure specials languishing on the market - we have a four-year backlog already, according to Ranieri.

Instead, Ranieri recommends setting up special financing programs aimed at investors eager to snap up the backlog of bank-owned properties.

It all sounds a little self serving - the Wall Street argument for keeping the housing market inflated and maybe creating a couple new investment products at the same time.

But Ranieri is right about one thing - the foreclosure mess is about to go from dire to catastrophic.

RealtyTrac reports today that foreclosures dropped in 2010, with a 22 percent plunge in the fourth quarter.

But only a fool would read this as a sign that the wave of distressed properties has finally peaked.

Rather, it's fairly obvious the robo-signing crisis forced lenders to backtrack for a few months as they got their paperwork in order.

If anything, foreclosures will shatter more records as we head deeper into 2011 and lenders ramp up their efforts to seize distressed properties.

Clearly Wall Street smells an opportunity here to make a few bucks off the foreclosure mess - I am referring to Ranieri's idea that the government should finance investors to buy up these properties.

Wall Street to the rescue? Now there's a thought.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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