So long as the non-agency RMBS market is frozen, the agencies are necessary. There is not enough capacity on bank balance sheets to replace the agencies.
However, if the non-agency RMBS market is restarted, then the dependence on the agencies is dramatically reduced.
Restarting the non-agency RMBS market is a three step process:
- As has been discussed repeatedly on this blog, current asset level performance on an observable event basis must be made available to all credit market participants.
- With this data, all credit market participants can independently analyze each security using the valuation models of their choice.
- Using their independent valuations, investors can then make buy, hold and sell decisions based on the prices being shown by Wall Street.