Lewis Ranieri, Creator of Mortgage-Backed Securities, Has the Answer

May 4, 2011
J. Webster
Comments Off on Lewis Ranieri, Creator of Mortgage-Backed Securities, Has the Answer

Lewis Ranieri, often called the “godfather” of mortgage finance for his role in the securitization of loans and creating mortgage-backed securities, or Lewey as I liked to call him, said lenders should swap debt with distressed home owners:

“If his house was $220,000, and now it’s $90,000, give me the keys, I give you a lease for seven years,” Ranieri, chairman of investment company Ranieri Partners LLC, said during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California. “If you behave well, I will give you back the house.”

Ranieri is famous of course for the depiction laid out by Michael Lewis in the book Liar’s Poker. Where Mr. Ranieri went from having a part-time job in the mail room of Salomon Brothers to creating mortgage-backed securities. Gift wrapping a collection of loans so everyone would want to buy them without digging deep into their quality – if the owner of the house with the loan would actually be able to pay when the adjustable rate jumped.

And, as everyone learned after the fact, these lovely gifts, these lovely securities, can become quite dangerous, especially when they’re chock full of subprime loans. Not sure if we should be taking advice from Ranieri on this one just yet. Think he’s still playing some poker and we can’t see his cards.


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