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Special effects

The annual global asset-backed securities two-day conference was held recently. Last year, Cannes, the year before it was Barcelona, and this year the Hilton on Edgware Road.

The event primarily involves the bankers and related service companies which bring issuers and investors together. This time around, there were also prominent appearances from various regulators.

Unfortunately, there was little evidence of doing anything together, never mind how to unlock the close to two-year market paralysis.

One of the more striking of many themes was an almost nostalgic, even evangelical yearning for former times. No, not the slack credit of the last 10 years but the 1950s.

In particular, the visiting Americans clearly had a vision. The US has to swallow a bitter pill, pay its way, forget easy credit, live within its means, let bad banks go under, bring back fiscal constraint, etc, etc.

The clear conclusion was that the various rescue programmes rolled out by the Fed are just that – lifeboats to stop a complete immersion of the banking system but in no way a solution to re-open markets.

Some implications for us here? If you had not already got there yourself by now, forget the specialist markets, including buy to let in its current shape.

First, liar loans or commonly referred to previously as self- certification. Make up your income, find a broker who knew how to fiddle the scorecard and you might even be eligible for a prime loan.

Virtually every major bank’s credit function is discredited. “Trust us, we’ve been around 100 years, we know what we are doing…” So try convincing an investor of the merits of liar loans or fasttrack or non-verification in the future.

Next, sub-prime. No don’t laugh. There are still some out there in the darkest corners who think this one still has a future. Of all the sectors, though, this actually has the more serious policy implications. Politicians on both sides of the pond are now publicly prepared to say that the dream of home- ownership was over extended, that some sectors of society like the low income should not be pushed towards home ownership.

This policy U-turn is seismic. For example, what are the implications for social housing needs?

Most contentious will be the future of buy to let. Now this has a future but nothing like what it looks like today. Arrears are spiralling out of control, with amateur landlords clearly distressed. Existing lenders are rapidly becoming landlords. Either via the product providers or MCOB’s replacement buy to let will be firmly put back in the “business speculation” box.

Yes Reits and property companies will remain active but forget the average joe remortgaging his residential home to fund the deposit on his buy to let.

As for the current debate around extending the RDR into mortgages? If the GABS conference is anything to go by, this looks a given. The incentive for mortgage distributors who drove mortgage origination were not aligned with the interests of the eventual owners of these assets.

Always remember what should be driving us all – how do we get investors back into the market? Investors may have been stupid but unless you think you can pull the wool over their eyes twice, we need solutions palatable for all.


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