The Council of Mortgage Lenders (CML) has urged the Government to act quickly to resolve the funding problems in the UK mortgage market.
The lobby group has been disappointed the Crosby Review, set up by the Chancellor to examine how to restart wholesale finance markets, will not be making any recommendations in its interim report.
However, the CML has drawn up a blueprint to address funding issues, which it says could reduce the severity of the downturn in the UK housing market: “The CML firmly believes that with quick and decisive implementation of the mortgage market funding proposal, the Government could mitigate the difficulties that households and the housing market will otherwise face, as well as helping to restore greater confidence to the financial system as a whole.”
The CML has submitted an action plan to kick-start the market for UK residential mortgage backed securities (RMBS) and Covered Bonds (CBs).
The plan involves the Bank of England offering a secured lending repo facility, using RMBS and CBs as collateral.
RMBS and CBs would need to be publicly issued to qualify for the scheme, essentially ensuring the solution is being delivered by the market itself, but with support from the repo facility.
Investors would still take the credit risk but the CML hopes the repo facility would help to return confidence and break the current downward spiral in mortgage securities and house prices.
Michael Coogan, director general of the CML, comments: “This proposal has the virtue of being delivered through the market itself. Unlike a government guarantee, the investor keeps the credit risk.
“But it specifically incentivises investors, which the special liquidity scheme does not. And it can be implemented quickly, in an environment where speed is of the essence.”
The CML feels its solution will be far more effective than the Bank of England’s special liquidity scheme. It says this has essentially been used by banks to shore up their balance sheets, and has had little impact on the availability of mortgage finance.
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