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St Louis Mortgage Refinancing and Consumer Lending News: Lewis Ranieri: Father of Mortgage Finance Revisits Subprime
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Lewis Ranieri, once known as the father of mortgage finance, is daring to revisit the most infamous sector of the mortgage market—subprime lending. Four years ago, sky-high defaults on subprime mortgages which were used mainly by borrowers with weak credit profiles which touched off the global financial meltdown, wiped out hundreds of financial institutions world-wide and destroyed billions of dollars invested in mortgage-backed securities.
Today, lawsuits against Wall Street firms from investors burned by souring mortgage securities continue to meander through the courts. Yet Mr. Ranieri believes now is the time for nontraditional lenders to enter the market.
While the bank-lending standards that created the mortgage crisis were too loose during the housing boom, they are now too tight, Mr. Ranieri says, reducing the supply of mortgages to average borrowers and opening a door for lenders like Shellpoint Partners LLC, a mortgage-finance company he recently founded with two partners.
“The pendulum has swung too far in the other direction,” Mr. Ranieri, 64 years old, said in an email comment. “Former traditional prime borrowers with good credit scores who could comfortably make mortgage payments are being precluded from home ownership due to banks’ rigid criteria.”
Few on Wall Street are as closely tied to the mortgage market as Brooklyn, New York born Mr. Ranieri, a onetime star bond trader at Salomon Brothers who helped to pioneer mortgage-backed securities in the 1980s. More than two decades later, the market developed by Mr. Ranieri and a handful of financial whiz kids came to a screeching halt.
As mortgage bonds, which are backed by millions of Americans’ home-loan payments, defaulted in droves, the ripple effects spread through the global economy, ushering in a devastating financial crisis. Mr. Ranieri also faced a setback in 2008, when a Texas bank he had acquired failed and was seized by regulators.
It isn’t clear whether Shellpoint can raise the large amounts of capital needed to play a big role in the nonprime-loan market. But there is little doubt that consumer demand for alternative mortgage financing is growing as traditional banks shut out all but the most pristine borrowers.
“What Ranieri is doing is exactly what is needed in the market today and serves an important policy need,” says Kenneth Rosen, who worked with Mr. Ranieri at Salomon Brothers in the 1980s and is now chairman of the Fisher Center for Real Estate & Urban Economics at University of California at Berkeley’s Haas School of Business. “We should be loosening credit at the bottom of the markets.”
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