A new mortgage secondary market has been slow to emerge in the wake of the housing crisis. The government secondary outlets (Fannie, Freddie and Ginnie) have anchored the market since the private-label residential secondary market melted down. But today, we are seeing the first real signs that a new foundation is being laid for a future secondary market that will rely less on the government.
And while policymakers have begun tackling the hard compromises that this complex housing-finance replacement system will require, the market is taking its own steps to create some different outlets for loans. And while we have seen very little private-label residential securities issuance, we have seen signs of growing portfolio lending.
Whether these loans are temporarily parked in an institution's portfolio or permanently in residence there, it has allowed lenders to find an alternative outlet for non-conforming, jumbo, non-vanilla loans. This is a good thing for non-cookie-cutter homebuyers (as well as for the few refinancing borrowers still out there). Anything that can widen the credit box--even temporarily--is a positive for the housing market.
We see evidence of how much commercial banks and savings institutions are relying on portfolio lending in the call-report data collected by banking regulators. As John Bancroft of Inside Mortgage Finance wrote on April 7 in a story titled "Banks and Thrifts Saw Secondary Market Activity Plunge Last Year," there was a substantial uptick in portfolio lending in 2013. "The ratio of loans sold to...