Many lenders can't sell loans on to other investors, market experts say
By Alistair Barr, MarketWatch
Last Update: 8:59 PM ET Aug 2, 2007
SAN FRANCISCO (MarketWatch) -- The secondary market that supports a big part of the U.S. mortgage industry has ground to a halt in recent days, a development that could dramatically increase the cost of home loans in expensive regions, experts said on Thursday.

"Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so ... our industry and Indymac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself," Mike Perry, chief executive of home loan specialist Indymac Bancorp IMB19.33, -1.72, -8.2%) , said. After mortgage lenders like Indymac offer loans, they often package them for sale to institutional investors as mortgage-backed securities. If the loans conform to the standards of government-sponsored enterprises such as Fannie Mae Sponsored by:
FNM58.48, -0.48, -0.8%) , those organizations can buy them. If the loans don't conform, they are sold in the private, secondary market to other investors such as hedge funds and insurers. The private, secondary mortgage market "is not functioning," Perry wrote in an email to Indymac staff, which was posted on a Web site run by the company on Thursday. It's currently difficult to trade even AAA rated parts of private mortgage-backed securities. Only mortgages that conform to the standards of government sponsored enterprises (GSEs) like Fannie are currently trading, Perry added. That account was confirmed by Scott Valentin, a mortgage company analyst at Friedman, Billings, Ramsey. "We're hearing securitizations have frozen up," he said in an interview. "No one wants to bid on these things and then find out that the loans are worthless tomorrow."