CML moves to address mortgage funding problems


CML moves to address mortgage funding problems
The Council of Mortgage Lenders (CML) has presented proposals to the government designed to address funding problems in the UK mortgage market.

The policy – which has already been submitted to the Crosby mortgage funding review – is an innovative approach, which helps the financial system to help itself, argues the CML.

Essentially the plan would involve the Bank of England offering a repo facility (essentially a form of secured lending), using as collateral new UK residential mortgage backed securities (RMBS) or covered bonds (CBs).

To qualify, the RMBS or CBs would first have to be sold to investors in a public issue.

This is of crucial importance, as it would ensure the market itself is essentially delivering the solution, with the repo facility simply acting as a catalyst to restore market confidence.

The investors would take the credit risk in the usual way. But the repo facility would give them confidence, and so help to break the current vicious circle.

But speed is of the essence, argues the CML.

The organisation was disappointed by speculation this week that the Crosby review of housing finance was unlikely to offer policy recommendations in its interim report.

"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," said CML director general Michael Coogan.

"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."

The CML suggests its proposals differ from the present special liquidity scheme in two key respects.

First, the plan is specifically targeted at new RMBS and CBs (which are excluded from the SLS if they contain mortgages originated after December 2007), and hence allows the likelihood of a greater flow of funds directly back to support new mortgage lending.

Second, 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.

Commenting on the proposals Ross Bowen, managing director of Connells Survey & Valuation, said: "We welcome the CML's initiative to help restore more normal functioning to the mortgage market.

"The need for effective, decisive action is vital. With the wider economic and political impact from the downturn in the housing market becoming more defined, the clock is ticking."

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