Ranieri: Take a million houses off market

By Andrew Coen

Dec 1, 2008 @ 9:50 am (Updated 9:50 am) EST

The federal government and private partners should work together to remove one million homes from the housing market as a way to turn the U.S. economy around, Franklin Bank Corp. of Houston chairman Lewis Ranieri said in a speech last week at Hofstra University in Hempstead, N.Y.

He was the keynote speaker for Hofstra’s conference, “Causes of the Recent Financial Crisis and Effects of the Bailout,” which was sponsored by its Frank G. Zarb School of Business through its Merrill Lynch Center for the Study of International Financial Services and Markets.

Mr. Ranieri, known as the chief architect behind mortgage-backed securities business, blamed the collapse of mortgage-backed securities he helped create while at the now-defunct Salomon Brothers on a lack of checks and balances. As a result, people who could not afford homes were able to purchase them for nearly no money down.

“We took out the fundamental, structural checks and balances, which were in the mortgage securities market,” he said.

To rectify this situation, Mr. Ranieri suggested converting vacant properties into houses available for lease with the chance to eventually buy or rent.

“You can’t do restructuring loan by loan,” he said, explaining why one million homes need to be taken off the market for credit conditions to improve.

Mr. Ranieri, a former vice chairman at New York-based Salomon Brothers Inc., also would consider supporting changes in bankruptcy laws that would allow courts to modify loans to get people’s credit history back on track.

He has been director of Franklin Bank Corp. since its founding in 2001 and was tapped as its chairman in May 2008.