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Securitization Necessary to Real Estate Recovery: Stearns

When it comes to the housing market and peoples' ability to purchase homes, California still isn't doing very well. But the state's second largest private lender is growing by leaps and bounds.

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Glenn Stearns, chairman of Stearns Corporation and chief executive of a portfolio of financial services companies, trimmed his staff to 80 employees in 2007 and did just $19 million in fundings for September of that year. Today, he's added 1,000 staff and is doing an average of about $1 billion a month in fundings.

"It's that last-man-standing kind of concept for us," he said. "I don't think the overall market has increased like that — it hasn't." Stearns' company has simply taken a lot more share of the existing market, he explained.

"It's gotten so tough with regulations and restrictions on loans that, really, it's hard to bring the economy up on its feet right now," he told CNBC Monday.

"We've overcorrected, I think. There's obvious need for regulation ... [but]now we need to loosen up a little bit on allowing people to come in and buy homes and not be scrutinized as tight as they are."

That doesn't mean a return to "no-doc loans," Stearns said, referring to the easy loans issued to borrowers with dubious credit, but he believes the underwriting pendulum has swung too far in the opposite direction and it's time to ease up a bit.

Even if that were to happen, can there be any real recovery in residential real estate without securitization?

"Absolutely not. We need that confidence. We're selling everything to Fannie and Freddie right now," he said. "You see a couple of securities coming out right now in the jumbo market...we need that to happen."

"Even with Fannie and Freddie, we need them," he said.

More on Housing:

"The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.