While many industry groups are trying to block implementation of certain Dodd-Frank Act provisions, supporters of a private mortgage market should have a strong interest in having the risk retention regulations finalized, according to Sarah Rosen Wartell, a former FHA official in the Clinton Administration.

Wartell, who now serves as executive vice president for the Center for American Progress, noted that a finalized risk retention rule will provide the ground rules for the development of a private-label securities (PLS) market for residential mortgages.

Once those rules are in place, PLS issuers will be able to serve the jumbo mortgage market and replace Fannie Mae and Freddie Mac as the GSEs withdraw from the upper end of the market, Wartell testified at a House Budget Committee hearing on Thursday.

However, the private sector will have to develop this capacity as the Obama Administration gradually downsizes the GSEs, she said. "If we don’t complete those rulemakings, the ability to shift to the private market will be limited," she said.

Since the housing market crashed in earnest in 2008, only two private label mortgage bonds have come to market. Both were issued by Redwood Trust, a publicly traded REIT based in Mill Valley, Calif.

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