Mortgage securitization had been touted as wunderkind gamechanger bringing unparalleled liquidity to the real estate markets, allowing banks to lend more, enabling more people to get residential mortgages so they can own homes, and providing greater flexibility in transactions for commercial owners and dealmakers. Some observers say that only when securitization markets revive will commercial real estate markets have a chance to recover.
But arguably securitization markets created the current mess. Banks had more to lend, because they were able to clear their balance sheets by securitizing loan portfolios. Making good loans didn't drive profitability, making more loans did. The slice and dice structures mean nobody really knows who owns what or what pieces of which loans have gone bad. Risk transfer from institutional lenders to millions of ill-informed bond holders perpetuated moral hazard and eventually debacle.
Will it be enough to fix rating agencies, which proved totally incapable of assessing offerings? Of course the ratings firms were also totally compromised, profiting from fees from bond sponsors. Touted transparency in the securitization process was trumped by the volume of transactions and ultra complicated, Rube Goldberg structures.
You would think we would want a system where the original lender has skin the game and is always focused on underwriting quality. Would bankers have allowed loans with little equity down and crazy quilt structures, if they didn't have securitization outlets?
And will taxpayers want to keep backstopping private entities or quasi (now essentially public) entities like Fannie and Freddie.
Dealmakers want the securitization machine turned back on, but how can we afford to let that happen? And how can it be retooled to avoid another ugly breakdown and all its horrible consequences?
Our sad state affairs delays fixing the securitization engine, if it can be fixed at all.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
