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80 bit more active, but it's still a very, very small fraction of what it used to be," according to Rui Pereira, managing director and head of the U.S. RMBS group for Fitch Ratings. Analyzing secondary market data, the Urban Institute concludes that PLS have even declined in the past few months from recent increases. e decline intensifies the urgency of finding the answer to the one question on everyone's mind: What will it take to bring more private capital back to the secondary mortgage market? According to AMI's executive director, Chris Katopis, "e truth is, investment will be made but in other asset classes rather than PLS, because the risk and the severity can be very high given the problems that we've identified." Katopis says private investors simply want better underwriting, but regardless of what the credit box looks like, if problems arise with unenforceable reps and warranties or eminent domain, he says better underwriting alone doesn't have much of an impact. Eminent domain is an especially big concern for private investors. "A number of municipalities have come very close to implementing [eminent domain], because they think it's money for nothing," Katopis says, but AMI describes the application of eminent domain for foreclosure mitigation as "unconstitutional." e investor group points out that the scheme is designed to benefit a single, private, for-profit investment firm, Mortgage Resolution Partners, and will only result in reduced credit availability and higher borrowing costs. With the succession of procedural changes that mortgage servicers are required to implement, Katopis says investors are also looking for better servicing execution. For Pereira, expectations related to servicing are clear-cut. "What investors really want to see is a servicer that's got an effective platform, that's going to maximize their cash flows. It's really that simple," he said. According to Pereira, what the private-label market really needs is greater liquidity from a more regular supply of collateral and also investment opportunities with higher yields and better economics. "e only way for that to happen is if interest rates increase from where they are today," Pereira said. QUALIFIED MORTGAGE RULE CREATES UNCERTAINTY In addition, issues such as the Qualified Mortgage (QM) rule cast a cloud of uncertainty over the market, as Paul Leonard of the Financial Services Roundtable pointed out at the HFPC-CoreLogic Sunset Seminar. Leonard says this obscurity is making lenders hesitant to increase lending, especially to borrowers with less-than-pristine credit. Pereira, however, says that while there is liability risk associated with non-QM loans, he's seeing investors participate across the credit spectrum in non-agency RMBS. "ey're participating in the pristine, jumbo prime transactions like Redwood has issued, all the way to unrated nonperforming loan transactions," he said. "At the end of the day, investor participation in any type of transaction . . . is really driven by their views of the credit quality of the mortgage pool, pricing of the transaction, and their perception of the liquidity of the securities they're buying." According to a spokesperson with the Consumer Financial Protection Bureau (CFPB), "e CFPB is continuing to monitor the effects of the mortgage rules on the market. It would be premature to comment on the limited data available, but ratings agencies are in the process of developing guidance for non-QM loan securitizations, and creditors, including some of the nation's largest banks, have indicated they will originate non-QM loans." CONGRESSIONAL REFORM UNLIKELY IN THE NEAR TERM Katopis testified before Congress about how investors "have been abused by the big servicers, just like consumers." He says in addition to a lack of transparency, private investors have also voiced concerns to regulators about "self-dealing," in which homeowners and MBS investors are exploited for the benefit of a servicer's affiliates. Katopis says his organization is "very pleased with the actions taken by a number of regulators over the past few months" to stamp out such practices. Investors, regulators, lawmakers, and industry analysts alike frequently pin the secondary mortgage market's future success on the private sector, yet curtailment of the GSEs' securitization domination has been slow and calculated. While several pieces of legislation have been drafted and submitted to committees for review, Katopis says the bills themselves are not helping PLS. "Until the Senate Banking leadership adopts those positions, they're not going to become law," he said. Katopis says there are a few "enlightened senators" who acknowledge PLS investors' interests, but the congressional hall's mainstream are still essentially unwilling to make the changes that are necessary to restore the PLS market. According to Pereira, "the market expects a very slow, long reform process." He says it's "In the absence of GSE reform legislation, the Federal Housing Finance Agency has attempted to bring private capital back into the mortgage market." –LAURIE GOODMAN

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