CNN is reporting this morning about a plan that may give some traction to efforts to boost the struggling mortgage markets. In essence, the plan would make it easier for investors to feel confidence in placing their money in mortgage backed securities.
The plan, proposed by the American Securitization Forum, calls for an increase in the transparency of the mortgage investment process. The idea is that by having a greater understanding of what is being purchased, Investors can make more informed decisions about the funds in which they choose to invest.
Additionally, the plan would call for a simplification of the loan bundling process. The goal of this aspect of the plan would be to have loan bundles that have greater similarities. In other words, investors who put money into a specific security can be confident that the loans in that “bundle” are all similar.
Now, if you are anything like me, you are thinking: Why weren’t these two strategies in place before? Isn’t it common sense to have transparency in securities? Isn’t it even more common sense to have similar loans bundled together?
The mere fact that there is a need for this new proposed plan is evidence of just how messed up the mortgage market has been—and just how necessary it is to find solutions and to find them fast.
So what does it mean to you? Well, if in fact more investors choose to return to the mortgage backed securities, banks will have an increase in liquidity. The new found liquidity will mean more money to lend, which will in turn lead to a loosening of the restrictions placed on borrowers. For the sake of us all, lets hope that this plan (along with a few other needed changes) gets pushed along quickly. We need some changes, and these are reasonable and actionable solutions.
