The Crosby report, which came out alongside the pre-Budget report last week, urged the Government to guarantee mortgage-backed securities created from new loans in an attempt to add liquidity to the mortgage wholesale market and boost confidence.
In his pre-Budget report speech, Chancellor Alistair Darling said he wanted to implement the plans and shared Crosby’s concerns regarding mortgage finance but he warned that the Government would need to get state-aid approval from the European Commission.
He said: “We will resolve some of the technical and practical considerations but we will work out a detailed scheme based on his recommendations and seek state approval to proceed.”
But the Intermediary Mortgage Lenders’ Association warns that the timetable for implementation is too long, especially considering that the Government has been looking at this option for over a year.
Imla chief executive Peter Williams says: “This has blown out into the open the problems of the market and the fact that next year there could be very little new additional lending but it could have been proposed more than 12 months ago. The industry has been pointing to this problem for months and nobody wanted to know and they have finally owned up to it.
“The problem is that it is going to take time to get permission and get lending under way. We are still left with a lending shortfall and the Government will still have to put money directly into the mortgage market.”
The Association of Mortgage Intermediaries has also hit out at the Government for not acting sooner. Director general Chris Cummings says: “We have consistently called for this measure over the last year, most recently in our Solutions To The Credit Crunch paper.”
The Council of Mortgage Lenders says: “The Government says it must take account of EU competition issues but we need action now. The wholesale market has been blocked for over a year.”
John Charcol senior technical manager Ray Boulger says Darling has completely failed to recognise the urgency with which Crosby’s principle proposal needs to be implemented.
Boulger says: “The Chancellor said he will not be reporting any further proposals until next year’s Budget. That is much too slow – the mortgage market needs access to additional finance now.”
This sentiment was echoed across the industry. Cummings says: “We are disappointed that we will need to wait until the Budget next spring before help is provided to improve the supply of mortgages.”
Another bone of contention is the fact that Crosby’s proposals mean that lenders will only be able to securitise new mortgages.
Homefunding chief executive Tony Ward says: “You write mortgages into a warehouse as an interim funding position. People have been doing this for the last 18 months as they have not been able to securitise so now they have full warehouses on their balance sheet or a specially structured short-term facility.
“The problem is this scheme only allows you to deal with new mortgages. They will not have a warehouse to put new mortgages in as they cannot clear their existing ones. You have to clear the old mortgages before you can lend again.”
Williams says: “There is no reason to limit it to just new mortgages but the Government’s aim is to really put pressure on lenders to start lending, therefore giving them something to securitise. The focus is on new as the political pressure is on new.
“But many lenders have not got the money to do new lending. They need to get existing assets off their books. There is no reason to exclude existing loans.”
Williams is also worried that Crosby’s criteria to access the guarantee is too restrictive. The report says: “The guarantee would only be available for assets backed by prime mortgages. This could exclude high loan to value lending, for example, 95 per cent, loans to borrowers with impaired credit histories, individual voluntary agreements or bankruptcy orders and second charge loans.”
Another problem may be the Bank of England’s continued opposition to using wholesale lending as a means of raising funds.
At a Treasury select committee meeting last week, Bank of England governor Mervyn King said: “I am all in favour of finding ways of encouraging a sustainable rate of mortgage lending but I am not entirely confident that the best way is to resurrect a form of lending that for a good reason has fallen out of favour.”
Nationwide group director Matthew Wyles says: “We should forget about the securitisation market until the banking sector has been stabilised. Mortgage-backed securities have been badly damaged and must come back in a totally different form. The model has been terminally broken.”
What can brokers do in a stagnant market? Quantum Mort-gages director Fahim Antoniades says it is a case of waiting for the market to correct itself. He says: “Ultimately, the markets are the drivers, . Things have picked up slightly and it seems as if rates are improving.
“Advisers should be concerned with their business and try to ignore any of the negativity that came from the report.”