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Could tight mortgage practices be worse than loose lending?

Oct. 28 (Bloomberg) -- The U.S. mortgage market has experienced an “irrational restriction” of credit as lenders and regulators overreact to the loose lending during a bubble that burst in 2007, mortgage-bond pioneer Lewis Ranieri said.

“If this legacy persists the consequences will be more profound for the country than the economic losses” caused by the bust, Ranieri said today at an annual conference hosted by the Mortgage Bankers Association in Washington.

Ranieri, the chairman of Uniondale, New York-based Ranieri Partners, helped expand the mortgage-securities market in the 1980s at Salomon Brothers Inc., where he was vice chairman. His firm’s investments include Selene Finance LP, which targets soured debt, and home lender Shellpoint Partners LLC.

Tight credit and foreclosures pushed down the U.S. homeownership rate to 65 percent in the first half of this year from a peak of 69.2 percent in June 2004, according to Census Bureau data.

Most lenders no longer offer borrowers the ability to qualify without fully documenting their incomes and assets, and starting next year regulations known as qualified mortgage rules will expose originators to greater legal risks when making loans with payments exceeding 43 percent of their pay or carrying risky features.

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