Chris Hentemann, Founder and CIO, 400 Capital Management

Hentemann says pre-crisis financing structures worked around regulatory requirements and used little risk-adjusted capital, while securitization later expanded leverage and capital-markets funding as discipline and oversight weakened. He saw signs of a coming correction but said he could not forecast its timing.

Hentemann says post-crisis mortgage rules tightened borrower documentation and safe-harbor standards, and he views agency mortgage FICO scores rising from roughly 720 to about 765 after peaking near 780 as evidence that standards overshot. He describes U.S. housing as one of the largest credit markets, potentially larger than the Treasury market when housing stock is included.

After prospective investors withdrew amid the 2008 turmoil—including Fannie Mae and Freddie Mac entering conservatorship, Merrill Lynch disappearing, and Lehman filing—Hentemann says he started his firm with his own money. It began with $2.5 million and grew organically to nearly $8 billion in AUM; he argues firms should prioritize appropriate risk-adjusted capital over balance-sheet scale.

Hentemann describes risk transfer as a way for banks to keep lending while shifting some portfolio credit risk to investors: corporate-loan SRTs became large and fairly efficient, while consumer risk-sharing tranches can help banks recover regulatory capital. In synthetic transactions such as OceanFirst’s, the assets remain on the bank’s balance sheet even as credit risk is transferred, potentially freeing capital for growth or acquisitions.

Hentemann argues that financing SRT assets with bank repo can bring risk back onto regulated bank balance sheets, undermining the goal of transferring it to capital markets. He says the position instead was privately rated and placed with a private party, and that bespoke deals need structural protection for tail risks when a convenient correlated hedge may not exist.