Government must act now

Within the last twenty four hours, The Council of Mortgage Lenders has announced it has drawn up a plan to address the funding problems in the mortgage market. The CML believes it could help to significantly reduce the severity of problems in the housing market, and has already submitted their plans to Sir James Crosby who has been asked by the Treasury to review housing finance in the UK. The CML has said it is disappointed by rumours that Sir James' interim report is unlikely to offer policy recommendations.

The CML proposals include setting rigid standards for packages of mortgages which are sold on as investments. The new standards would a standardised securitisation structure, with minimum asset quality requirements but without a government guarantee.

At the same time, The Association of Mortgage Intermediaries has appealed to those who oversee the housing market to take urgent action to calm the current turbulence.

In their Quarterly Economic Bulletin, Chris Cummins, Director General of the AMI stated:

"The AMI has met with the Treasury, Bank of England, Financial Services Authority and Sir James Crosby to set out its case for decisive action. We have also spoken to all the political parties as we now believe that political pressure needs to be brought to bear if we are to stop a liquidity crunch becoming an economic crisis.

"The financial position of lending institutions remains one of the main sticking points to the recovery of the mortgage market. Banks are undercapitalised following the large round of write-offs on wholesale instruments and are currently going through the protracted process of rebuilding their balance sheets.

"With capital market liquidity still very poor, funding costs high, and securitisations running at less than a tenth of the levels of recent years, institutions have not got access to cash to grow their businesses."

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