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Call to end “myth” over role of securitisation in crisis

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.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. For those not familiar with the term ‘wholesale funding’, all securitisations in the UK have been effected as wholesale funding, not retail funding.

    As John Heron points out, it is the particular nature of this form of wholesale funding that gives balance sheet strength to the mortgage loan originator and makes securitisation attractive when compared to most other forms of wholesale funding and to retail funding as well.

  2. Rob Derry (Brunel Mortgages & Loans) 14th November 2011 at 10:16 am

    I have to agree with John. Securitisation has been demonised by many (including the FSA). The regulator was (maybe still is) convinced that the lenders that were using this tool were to blame as they exited the market quickly. The suggestion being that the lenders had taken the money and run when the truth couldn’t have been more different. I’m sure all of the lenders that relied on securitisation would much rather have remained in the market originating loans but they couldn’t.
    The problem was not how the loans were originated, it was how they were sliced, diced and flogged by whizzkids with spreadsheets Investment fund managers just bought them with no real understanding of what they were investing in but they thought they’d better get in on the act as everyone else was.

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