Wed 16 Jul 2008
CML plans to boost lending
The Council of Mortgage Lenders (CML) has drawn up a plan to address the current funding problems in the mortgage market.The idea, which has already been submitted to the Crosby review team and to the Treasury, is believed to be an innovative approach which could “help the financial system to help itself”.
The suggested action plan is essentially a way of kick-starting the markets for UK residential mortgage-backed securities (RMBS) and covered bonds (CBs) back into life. These are parts of the market that have been dysfunctional since investor appetite disappeared in the wake of the credit crunch. Their loss has been the main cause of the contraction in the size of the mortgage market, hence the lack of mortgage availability for many borrowers and higher mortgage costs.
This plan differs significantly from the Bank of England's special liquidity scheme (SLS) and other BoE facilities in two ways, says the CML. Firstly, it is specifically targeted at new RMBS and CBs, and hence allows the likelihood of a greater flow of funds directly back to support new mortgage lending. Secondly, and more importantly, it specifically galvanises investors back into the market in a way that the SLS does not. This is important as a step back towards self-sufficiency in the mortgage securities markets.
"If they act quickly, there is a window of opportunity here for the government and the Bank of England to break the logjam in the housing and mortgage markets and underpin confidence in the financial system. The single biggest issue in the housing market that the authorities need to address is the lack of available funding to support new mortgage lending,” said CML Director General Michael Coogan (pictured).
"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. A year into the credit crunch, there is no merit at all in waiting until the autumn before taking steps that will help the housing market to remain more resilient, and so help the overall health and stability of the UK economy."
Posted by Marc Da-Silva
in Bank of England, Council of Mortgage Lenders, Michael Coogan, News, SLS Group, Treasury Select Committee on Wed 16 Jul 2008
Have your say and comment on this article