Morgan Stanley chief UK economist David Miles has called on the Government to introduce a Fannie Mae/ Freddie Mac-style agency to deal with emergency lending situations.
The Institute of Fiscal Studies and Morgan Stanley 2007 Green Budget report, published last week, proposes creating a Government-backed agency,or using an existing one to buy or lend against the collateral of mortgage-backed securities.
Miles estimates that unless the securitisation market is reopened, lenders face a £70bn shortfall in funds this year. With net lending in 2007 at £108bn, this would equal almost two-thirds of annual net lending.
He believes lending for a specific period against the collateral of mortgage-backed securities has the advantage that the agency could set a safety margin between the amount lent and the market value of the collateral.
John Charcol senior technical manager Ray Boulger believes this is a very well researched and sensible proposal. He says: “The mortgage market model is broken. Although I believe in a free market, I recognise there are times when there is a need for the Government to intervene.”
“This would be helpful and would bring back funding more quickly. There is an incentive for the Government to look carefully at this.”