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Housing: Warnings Aplenty From the 'Father' of Securitization

(Lew Ranieri is known as the "father of securitization" because he helped invent the securitized mortgage in 1977 while working for Salomon Brothers. He's even been credited with inventing the word "securitization.") Ranieri’s comments on the residential housing market, particularly with regard to a lack of credit, were notable: “I do not believe people realize how tight credit is…in the banking system but, frankly more importantly, from the agencies themselves…from Fannie and Freddie and even FHA [Federal Housing Administration]. To give you an example, if you take Fannie, Freddie, FHA, VA, and the rural housing authority—that’s the housing market. In 2010, they granted less credit than FHA did in 1999. I mean it’s just amazing.” And it’s not just credit. Ranieri is also concerned about foreclosures. Unleashing the full extent of foreclosures on the system, he warned, will be a bad thing for the housing market and even worse for the country. “If we go from 1.2 to 2.5 million foreclosures, the system will come apart at the seams. Putting that many people out of their houses, causing that kind of destruction…because remember, we have hundreds of thousands of vacant houses…a vacant house is a virus in the neighborhood, the house degenerates, it’s not like office buildings.”

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