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Buying & Selling a Home

A Sign of Improvement for
High-End Home Sales

A successful deal involving mortgages that aren’t federally guaranteed signals a healing housing market.

There’s some good news in the residential mortgage market. With completion of the first “private label” deal in almost two years, securitization is starting to come back.

A small $235-million bundle of jumbo loans attracted plenty of interest from private investors and a top rating from Moody’s. What helped make them attractive was that the underlying loans required borrowers to thoroughly document income and assets and to have high credit scores.

More deals will be coming, though they’ll be small. It will take years to return to the peak volume of $200 billion worth of securities backed by jumbo mortgages sold annually from 2003 to 2006. At the peak of the housing boom, in 2006, the market for private-label bonds backed by mortgages amounted to about $1 trillion.

It’s a critical first step in rebuilding the housing and mortgage markets. Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) are purchasing or guaranteeing conventional loans up to $417,000 in most cities and up to $729,750 in some metro areas. But without a way to offload bigger mortgages -- those outside the limits allowed for Fannie, Freddie and the FHA -- banks are reluctant to hold them on their books, tying up capital in reserves that are set aside in case the loans go sour. As a result, the high priced segment of the housing market has been brought to a near standstill. There is also uncertainty about new rules that might be part of the financial services regulations being debated by Congress.

Mark Vitner, senior economist with Wells Fargo Securities, says the issuance is important but doesn’t signal a return to a deep, liquid private sector market anytime soon. “We’re going to see small, and I stress small, relatively low risk transactions take place this year,” he says.