At Information Management Network’s ABS East conference, the panelists who opened up the discussion Tuesday delivered a somber assessment of the economy.

The issues around the feeble housing recovery and steep unemployment rate do not portend a recovery in the short term.

Talk also centered on what level of mortgage securitization will be appropriate in this new economy.

Corelogic Chief Economist Mark Fleming said that over 1.6 million shadow inventory homes are still waiting to enter the foreclosure mill. He added that this estimate was for the immediate future; a longer term look provided a bleaker tally of ten-to-11 million homes still in the shadows.

The excess inventory coupled with a market that has a scarcity of qualified borrowers mean that writing new mortgages will continue to be a struggle for banks.

However, another panel speaker, Brown University Visiting Fellow David Wyss, pointed out that banks have also shown more reluctance to write mortgages for anyone but the most qualified borrowers.

At the heart of the problem for the private label market is GSE’s involvement. Speakers said that certain measures, such as lowering the conforming loan limits eligible for GSE financing, will slowly open up opportunities for private label lending.

Where the appropriate level of securitization financing might be in this economy is uncertain. Fleming said that there is no doubt securitization is needed in the market because it facilitates liquidity. “There is a lot of [mortgage] securitization happening right now but it’s just been through three entities, [the GSEs]," he said. “Reducing loan limits will help and we can start to get back to a world where private capital has some space to play.”

Wyss also said that the mortgage market will have to turn back to securitization because a long term product like 30-year mortgages is only viable with securitization.

We have a choice, he added: “It’s either the return of the securitization market or the end of the fixed rate mortgage market.”

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