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Reason Foundation Director of Economic Research Anthony Randazzo on how to increase private investment in mortgage-backed securities.
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All right nearly four years -- of the financial crisis we are still left with the question how do we wind down Fannie Mae and Freddie Mac.
And bring private investors back into the mortgage backed securities my next guest has a plan.
Joining me now is -- Rand doesn't director of economic research for the reason foundation and Anthony.
You know you -- you have to say these stages mortgage backed securities and people run for the hills screaming.
How do we get the government outs and private investment banking and -- -- We'll step one is we have to Begin so to lower the the size of mortgages that Fannie Mae and Freddie Mac and FHA I might point out yeah that they are allowed to purchase so the private sector actually has some room to compete.
But once the private sector has room to compete we have a problem and that is there's now a lot of confidence in risk analysis and me.
Mortgage backed securities people want to run for the hills because.
Nobody knew what was in these what it in MBS -- that was a huge part of the problem so we're gonna go back to having mortgage backed securities the mortgage investments.
We need good ways of analyzing risk.
Nobody trusts them credit rating agencies and so our study is a few ideas and how we -- At some trust in the mortgage backed security -- what are the most important points when you -- guess you talking about more clarity and so we actually know what we're dealing with how do we achieve that.
Think exactly so so one of the most important things it obviously is information.
-- mortgage backed securities investors currently.
Aren't even allowed access to things like the -- -- of the homes that there investing in.
So you're just investing in homes you know the zip code -- -- and so we depend on mortgage backed secure we depend on.
Credit rating agencies to do deeper analysis and and that means only you only have big guys you don't have a lot of investors small investors people doing real deep -- children so they actually know what they're investing and so one of the things -- proposes.
Congress should make it legal for mortgage backed securities investors to know the addresses.
Of the more right mortgages that they're investing and you know one of the big problems was trusting the ratings on these security is a mean it was a complete nightmare back in 20072008.
Have we clear that up.
So we don't have to depend on the Morgan on the credit rating agencies themselves -- we have we have it for accounting standards we have that's been.
Right we can have in industries.
Group a mortgage underwriting standards board if you will we have a private sector industry group.
That defines different categories of mortgages.
That you we don't have to have the government said it we don't have to have regulators in these in these god awful.
Call a qualified residential mortgage should not be a programs -- regulations a CPB's trying to set up UB industry definitions you don't how.
-- to adhere to these these -- but it's it's an industry group that kind of -- -- standards that people follow so it's really clear what it is you're investing in and you don't have to depend on the credit rating agencies getting it right with some buying an area.
Double A or triple B night letters that doesn't tell you anything about the actual risk in the mortgages I don't think the trust is there anymore either what what -- would this do for interest rates -- this push interest rates higher we go back to private investment.
So what what one thinks it's consider wanna get it comes -- interest rates right now we're at historically low numbers that means if they go up that's not necessarily a bad thing.
And to if if you -- able to get a mortgage right now -- 4% that's great if a mortgage in the future is 5%.
Five and a half percent 6% even.
That's not actually the and the world for housing and what if -- -- -- stop thinking about housing as this investment that could possibly earn you -- 7% return which you can't it's a savings account shrank a bit.
As we want housing prices to actually go down or at least from -- -- somewhat stable.
That is so that it's affordable then we don't have to worry about interest rates going up -- -- that's certainly to take a lot of steps to get this housing industry back on its faith and certainly this will be one of them I think thank you so much Anthony -- although.
Of the reason foundation and get the government now and get private investment back in would be a good thing that's.
