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Banks Can Fix Crisis by Easing U.S. Homeowner Debt, Ranieri Says

Short Sale
An auction notice is displayed in front of a home for sale in West Palm Beach, Florida. Photographer: Mark Elias/Bloomberg

U.S. lenders can assist millions of owners who are underwater or in default by offering short-term leases on their homes, said Lewis Ranieri, the pioneer of mortgage securitization.

“There are unfortunately millions of lower- and middle-class people who reached for the American dream and were coached into how to buy a house,” Ranieri said yesterday during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California. Borrowers whose property values have fallen below the amount owed “should get help,” he said.

As many as 11 million troubled mortgages are weighing on the U.S. housing market, said Ranieri, who packaged home loans into securities at Salomon Brothers, making it Wall Street’s most profitable firm in the 1980s. Distressed sales were 40 percent of transactions in March, the National Association of Realtors said April 20, while the S&P/Case-Shiller index showed prices falling 3.3 percent in February from a year earlier.

“If his house was $220,000, and now it’s $90,000, give me the keys, I give you a lease for seven years,” said Ranieri, chairman of New York-based investment company Ranieri Partners LLC. “If you behave well, I will give you back the house.”

Ranieri and Kenneth Rosen, a University of California economist and chairman of Rosen Consulting Group in Berkeley, published a five-point plan last month urging banks to reduce debt for qualified borrowers and recognize losses on second mortgages and home-equity lines of credit. They also favor having the mortgage market continue to be backed by Fannie Mae and Freddie Mac or a “successor entity.”

“Qualified borrowers for the last 30 years don’t get underwritten today,” Ranieri said during the panel discussion. “First thing today is putting the government back to work to provide good loans to good borrowers. We can’t foreclose on all those that are delinquent. It would be economically and socially catastrophic.”

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