Secondary Markets Won’t Recover Until 2011, Insiders Say

It’s a question that’s on the mind of more than a few mortgage market participants as of late: just when do the secondary mortgage markets get up off the mat? According to a recent survey mortgage market experts, it appears as if market sentiment is projecting an answer that may be longer than most of us might like. Industry insiders surveyed by New York and Dallas-based National Asset Direct Inc., a principal buyer of performing, sub-performing and non-performing residential assets, overwhelmingly suggested that secondary mortgage markets won’t recover until 2011. Nearly 51 percent of respondents — which span the residential construction, mortgage originations, servicing, real estate sales, REO management, capital markets and investor/hedge fund fields — fingered two years from now as a recovery point, while just under 17 percent said they believed a recovery was possible sometime this year. 4.6 percent said they never expect secondary mortgage markets to recover, according to survey results shared with HousingWire. The effect of increasing government intervention in secondary mortgage markets was equally clear in the minds of industry insiders: 60 percent said they expected efforts by Congress, Treasury and the Federal Reserve to have either minimal or negative consequences for the market. “[The government is] trying to set artificial bottom for housing prices, which is stalling any individual buyers and will in the future make real estate no longer a viable asset,” said one anonymous survey respondent. “If an asset cannot fall in value, then it cannot go up in value.” The result has largely been a lockup among sellers, one that should perhaps serve as a warning for policymakers now considering the future of the Treasury’s Troubled Asset Relief Program and any future government intervention into mortgage markets. Roughly a quarter of survey respondents indicated that “sellers waiting to see what happens with TARP” is the single most prevalent reason otherwise viable sellers are not moving pools of mortgage debt. “As the TARP plan continues to morph into something other than what it was originally portrayed, sellers are still waiting to determine if it will benefit them,” said Ray Schalk, head of whole loan trading at National Asset Direct. “The relief they expected in removing some of the bad assets has not materialized yet. Many lenders appear to be in a “wait and see” holding pattern.” Of course, part of the wait-and-see approach now being seen in the market comes from a fresh Obama administration that has revived whispers of a renewed bank bailout; such a bailout may involve buying up bad assets from those institutions that hold large volumes of troubled mortgage debt. “Sellers believe that the government will bail them out so they don’t want to take the loss or admit what the pools are actually worth,” said one survey respondent, under condition of anonymity. The New York Times took an in-depth look this past Sunday at the problems inherent in valuing mortgage securities in a story worth reading. The bottom line is that a seller leaving value on the table is apt to hold onto the assets and prevent forced marks on the rest of their portfolio; likewise, a buyer is likely to price conservatively, to account for the as-of-yet unknown further fall in asset values that seems certain to lie ahead. Write to Paul Jackson at [email protected].