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Expectations among private investors appear to be relatively high as they ride the wave of the current market momentum. close to the 2.1 million starts seen in 2005, it's still a strong step in the right direction, the firm says. Furthermore, building permits usually act as a reasonably good indicator for future construction. In March, permits exceeded expectations and, at 769,000, hit their highest annual rate since September 2008, reported Investment U. Better yet, signs point to more to come since new home inventories have been at historical lows for the past three years, the research firm notes. This means there aren't as many houses on the market, so any spike in demand—which Investment U anticipates—will need to be met with new developments and individual residences. Investment U also points to the fact that the National Association of Home Builders/Wells Fargo Index of builder confidence climbed in each of the last five months. At the end of the first quarter of 2012, it reached its highest level in five years. D.R. Horton, the nation's largest homebuilder, reports new orders are up 19 percent. For the first quarter of 2012, the Federal Housing Finance Agency reported that property values rose 0.3 percent month-over-month and 0.4 percent year-over-year. That's the first positive reading since 2007, Investment U reported. Lisa Marquis Jackson, SVP at John Burns Real Estate Consulting, says while the housing market has bottomed and a slow recovery is underway, the real question is what the recovery looks like. While stating she could make a "bull case for a roaring recovery" based on overcorrected prices, great affordability, low construction, declining resale listings, and rising rents, "our exuberance dampens a bit as we think about financing's role in the future of housing," particularly during the next 12 to 18 months, she said. New Risks Surface Even with the market's recent relative improvements, Chris Katopis, director of the Association of Mortgage Investors (AMI), urged caution among private investors. Katopis insists investors would be sage to access and fully understand the risks associated with mortgage investments today, such as the eminent domain issue that surfaced in San Bernardino County, 44 California, which he called "very troubling" to investors and private capital. Under California's eminent domain law, the government is required to pay the "fair market value" of the property. As defined in the California Code of Civil Procedure, the fair market value of the property seized is "the highest price on the date of valuation that would be agreed to by the seller, being willing to sell under no particular or urgent necessity for doing, nor obliged to sell, and a buyer, being ready, willing, and able to purchase, but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available." This is different from the definition of market value used in the marketplace, according to the California Eminent Domain Law Blog. Put simply, owners in eminent domain proceedings are entitled to the "highest" price that might reasonably be expected, which is determined by appraisal opinion, despite the reality that the government's and investors' appraisers often differ substantially in their opinions of what the "highest" price should be, according to the California attorneys who wrote the blog posting. If the investors involved are dissatisfied with the city's value assessments, they wrote, it leaves the city or county with three options: pay the owner-investors an amount the two parties can agree to; force the sale through eminent domain; or drop the project completely. Katopis says AMI and its members are bothered by many aspects of the issue, including government interference with markets and the group's belief that it will further depress home prices and chill home building. Additionally, Katopis worries it will impede the ability of borrowers in the subject markets to obtain financing from community banks and other lenders and damage individuals' 401k and retirement savings. "It will keep private capital out of the U.S. mortgage market," Katopis said. Whatever the case, there is no doubt that private equity now sees housing as more attractive than it did in recent years, according to Ron D'Vari, CEO and co-founder of NewOak Capital, LLC. "A year ago, everyone was worried about [issues like] the U.S. budget and downgrades," he said. "Then, 'magically,' paced by consumers, the fourth quarter of 2011 and the first quarter of this year, the U.S. economy started flashing signs of recovering." In fact, D'Vari says, the primary worries are now the euro crisis and global economic slowdown. Private Capital vs. Government Involvement While Katopis also acknowledges a spike in activity from this time last year, he frets over the U.S. government gumming up investor interest. "Investors seek return, so if a lot of government policies are tied to an investment, or if there are any other issues that the government can increase the risk around the investment, they all have to be reassessed," Katopis said. Freud echoes that sentiment. "You have to get the government out of it," he said, adding that if private capital plays a bigger role in the secondary market, it could help improve asset performance. "When private capital comes in, the regulatory issues will be nil. You won't have the risk," Freud said. "The best thing that could happen to our market is to shut down Fannie Mae and Freddie Mac. And you won't be answering to Dodd Frank." Fitch Ratings says continued uncertainty associated with aspects of the Dodd-Frank Act has caused many traditional issuers of residential mortgage-backed securities (RMBS) to delay their issuance plans. Of particular concern are the details surrounding the definition and creation of an exemption from the risk-retention requirements for qualified residential mortgages. Federal agencies issued a Notice of Proposed Rulemaking on the risk-retention exemption in March 2011. Some further clarity on the matter is hoped for in the third quarter of this year. The research and analytics firm CoreLogic, however, seems slightly more bullish about Dodd-Frank. Implementing the reform legislation should, over the long term, enable market participants to understand and chart their market involvement far more easily than in the past, CoreLogic SVP Brendan Keane wrote in a research paper he titled "Navigating the New Secondary Residential Mortgage Market." Keane did concede, though, that pending regulatory provisions may require recalibration to ensure they don't over-burden consumers and institutions and unintentionally hinder market recovery. Nevertheless, he says the regulatory certainty expected from Dodd-Frank should help pull the private-label securitization market from the dark, distrustful place it found in the wake of the crisis

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