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Comptroller Discusses Fading Threats to Secondary Market

Conditions in the housing sector may have finally improved enough to bring life back to the securitization market, ""Comptroller of the Currency"":http://www.occ.treas.gov/index.html Thomas Curry said in remarks at the ""American Securitization Forum"":http://www.eiseverywhere.com/ehome/index.php?eventid=37547&#.UQgxM2fiGSo.

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Curry noted that the credit market has shifted dramatically in its efforts to prevent the practices that paved the way for the financial meltdown but has gone too far--an expected reaction, he said. However, as the market stabilizes, it will become important for lenders to adjust appropriately and find a balance.

""The credit-availability pendulum has swung, as it was bound to do, in reaction to poor performance of the underlying assets, home price instability, and a lack of investor demand for anything other than a government guaranteed product,"" Curry said. ""As these factors abate, underwriting standards will need to find a new equilibrium of risk and reward for a sustainable mortgage market.""

One of the most critical components in turning the picture around, he said, is ""[g]etting the securitization pipeline flowing again."" There are two key prerequisites to achieve that: ""clear evidence of stability in the value of the underlying asset""--in other words, evidence that prices won't drop out again--and a resolution of ""the legal and regulatory uncertainties that have kept many investors on the sidelines.""

""We are starting to see signs of stabilization, with modest price increases in some markets and slowdown in foreclosures and defaults,"" Curry said of the first issue. ""Housing today is lending strength to the economic recovery, rather than sapping it.""

As far as regulatory uncertainties go, the comptroller said clarity and predictability about regulatory policy ""is an area in which I believe we have made significant progress,"" pointing to the recent issuance of the long-anticipated ""qualified mortgage"" rule and the imminent release of release of the ""qualified residential mortgage"" (QRM) definition that will establish guidelines for safer asset-backed securities.

Curry concluded by offering his assurance that the Office of the Comptroller of the Currency (OCC) and the other regulatory agencies involved in the formulation of the QRM definition are working hard to achieve their objectives: ""encouraging the availability of consumer credit on reasonable terms, facilitated by the secondary mortgage market, on the one hand, and sound credit market practices and investor protection on the other.""

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