The Long Road Ahead for Fannie & Freddie

After appearing on "The Strategy Session" on Wednesday, Lewis Ranieri, the "father" of the trillion dollar mortgage market and founder of the Hyperion private equity fund, continued the discussion off-air with David Faber, about the long road ahead for Freddie Mac and Fannie Mae.

Lew Ranieri is known as the “father of securitization” because he helped invent the securitized mortgage in 1977 while working for Salomon Brothers. It is sometimes said he even invented the word “securitization.”

Nothing will be decided about Fannie and Freddie until after the 2012 election, Ranieri said.

"Between now and then, people will start to understand how difficult it is to move from where we are to, let's say, back to what's envisioned, which is a private sector that at least takes back the piece it one time historically had," he said.

"To get from here to there is pretty complicated...the securization sector, right now really doesn't work," added Ranieri.

"The dilemma is the 15-year and 30-year mortgage are historical structure, they're much gentler on the homeowner, it's a lot easy to underwrite because you don't create a balloon. Now, they work in other countries, but in other countries they're much more rigirous about enforcing contracts," he said.

"If you changed the mortgage structure to something 10 years and under," according to Ranieri, "then covered bonds would work as well as balance sheets would work."

"You can't have it all which ways, you have to understand the implications in the choices...we have to understand all of the working parts," he said, adding, "this transition will be longer than people think."

Check out our entire conversation with Lewis Ranieri in this web exclusive to see why the threat of a second massive wave of foreclosures may be on the horizon.

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