The “mythology” that the Government and regulators have allowed to develop over the role of securitisation in the financial crisis came under attack at last week’s Imla executive briefing
Securitisation was used widely for mortgage funding before the 2007 financial crisis but since then, investors have shied away from investing in bonds backed by mortgages.
The wholesale markets were virtually closed until September 2009 but there have been signs they are starting to revive, with Lloyds Banking Group, Santander and Royal Bank of Scotland all issuing residential mortgage-backed securities, alongside other issues from smaller lenders.
Speaking at an Intermediary Mortgage Lenders Association executive briefing held in conjunction with Money Marketing last week, Home Funding chief executive Tony Ward said: “In the UK, securitisation was used in particular for funding but in the US it was used in large part to lay off risk and make trading profits. Securitisation has a bad name but it has been a really good thing for funding lending in this country without passing on risk.
“There is this mythology that the crisis was all securitisation’s fault. Government and regulators overlook this point time and again, that retail is good and wholesale is bad.”
Imla executive director Peter Williams said: “It is interesting how the mythology over securitisation is so entrenched. You look at so much commentary about Northern Rock, securitisation and how it all went wrong and it is very frustrating.”
Paragon Mortgages managing director John Heron said: “The reason that structured finance is so important is it delivers liquidity to the market and it matches your lending book, which is phenomenally valuable because it creates stability.”