Professor Says Piecemeal Changes Coming to Mortgage Market
03/28/2013 | by Allen Kenney

Stuart Gabriel, finance professor and director of the Richard S. Ziman Center for Real Estate at the UCLA Anderson School of Management, joined for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, Calif.

Gabriel offered his thoughts on the future role of Freddie Mac, Fannie Mae and the Federal Reserve in the single-family and multifamily mortgage system, as well as the impact on mortgage REITs.

“The government has used them in conservatorship to help stabilize the housing market, in particular the Federal Reserve by the securities of Fannie Mae and Freddie Mac,” Gabriel said. “The unfortunate element is that there are pretty divergent views of what might be the future of our housing finance system coming out of Congress and the White House. The views are sufficiently divergent that the topic is no longer being discussed. Literally, in the course of the last six to nine months, we’ve heard almost no mention of housing or housing finance among the domestic priorities in the second term of the Obama administration.”

Instead of full-scale programs, Gabriel said changes are coming in piecemeal fashion.

Gabriel noted that the expected resurgence of private securitization has yet to really take hold: “Nine out of 10 mortgages originated and securitized in the United States today come with U.S. government backing.”
Gabriel ultimately described the transition as “a very slow-moving train.”

Gabriel also discussed the changes in the market for commercial mortgage-backed securities (CMBS).

“The main difference for CMBS is that it’s going to be underwritten more stringently,” he said. “Subordination levels are going to be different, so that there’s going to be more collateralization for the debt and that the debt that is put in for a securitization structures itself.”

The changes will impact underwriting in the primary market, according to Gabriel.

“The system is tightening up on risk,” he said. “That means the debt is going to perform better. It means the debt is not going to be available in the same sort of ubiquitous way that it was before. It’s going to be available to only more qualified people.