Watchdog: Without Regulation, Consumer Mortgages Could Dry Up

We’re seeing it pretty often these days: federal watchdogs, under fire from Congressional Republicans and banking industry leaders for over-regulating, walking onto the banks’ turf and staring them down. First came Elizabeth Warren, the fiery de facto leader of the Consumer Financial Protection Bureau, telling the virulently anti-regulation U.S. Chamber of Commerce that she wanted new rules to strengthen American companies, not weaken them.

Now the Securities and Exchange Commission is stepping into the fight. Last week, SEC Chairwoman Mary Shapiro gave a speech to the annual meeting of the American Securitization Forum, which represents people who bundle all kinds of real loans—mortgages, car loans, etc.—and chop them into chunks called securities for investors to buy.

There’s just one problem, Shapiro pointed out: Nobody’s buying. The volume of mortgage-backed securities bought by private investors plummeted from $609 billion in 2006 to just $231 million last year, Shapiro said. And all but one of those deals required the explicit guarantee of the federal government before investors would come anywhere near.

To Shapiro, the message is clear. Despite the securities industry’s resistance, it needs better regulation, especially when it comes to telling investors what they’re actually buying. Or there won’t be much of an industry left.

“In the aftermath of the crisis, would-be investors are waiting for needed reforms in the securitization market before they are willing to wade back in,” Shapiro said in her prepared remarks. “But efforts to implement the reforms that would bring investors back to the markets are being met with strong and what I believe to be short-sighted resistance.”

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