Regulators must test the markets to see if the private label market can absorb the business that might come from reducing GSE conforming loan limits, said Martin Hughes, president and chief executive officer at Redwood Trust, today. Hughes made these remarks while testifying in front of the U.S. Senate hearing on the state of the securitization markets.

Hughes said that the scaremongering that has followed discussion of GSE reform has effectively prevented testing that would determine how changes would be handled by the private label sector. However, he believes that private capital would step in to take up positions that are no longer eligible to be covered by Fannie Mae and Freddie Mac.

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