From the Times Online:
Sir James Crosby, former chief executive of HBOS, who is carrying out a review for the Treasury, said that the “shortage of mortgage finance will persist throughout 2008, 2009 and 2010, and I suspect that current forecasts for new mortgage lending during this period will prove optimistic.”
As expected, Sir James ruled out setting up a US-style government-backed mortgage agency like America’s Fannie Mae to kick-start the UK market.
However, he hinted that British banks could be allowed to swap new mortgages for government debt.
This would extend an existing scheme that was introduced by the Bank of England in April, which lets banks exchange parcels of mortgages, known as mortgage-backed securities, to sell in the market for government debt….
Sir James said in his report: “I am looking with some urgency at the full range of options identified by market participants for stimulating the supply.”
But he also said that it was “debatable whether this sort of approach would help or prolong the transition to better functioning markets in the long term.”
While hinting at some options to reignite the UK mortgage market, Sir James also said that doing nothing may be the best course of action.
What a refreshing point of view. And this from a former banking senior executive.
4 comments
Comments are closed.
The deleted comments were from someone who violated this blog’s repeatedly published comment guidelines. We have indicated we view Barry Ritholtz‘s policy as web standard:
This may be a free country, but The Big Picture is my personal fiefdom. I rule over all as benevolent dictator/philospher king/utility infielder. Fear my wrath, mortals!
I will ban anyone whom I choose from posting comments — usually, for a damned good reason, but on rare occasions, for the exact same reason God created the platypus: because I feel like it.
I encourage a broad range of perspectives, philosophies, sexual orientations. Dissent is good. I want to see a debate of views, a battle in the market place of ideas. (Thomas Jefferson wasn’t so dumb after all). You can post on nearly anything, so long as it is at least tangentially related to the topic at hand.
On occasion, I will “unpublish” a comment if I feel it is too impolite, harsh, ad hominem, inappropriate, or off-topic. Off-topic posts have been rising, and I have taken to unpublishing them en masse. Publish too many comments on a given post (3 or 4 relevant comments out of 30 are fine, 10 out of 30 is excessive). It takes me ~10 seconds to un-publish 10 comments.
If you find yourself publishing way too many comments, consider this: This humble blog is my forum for expressing my ideas. Get your own damned blog.
A few things that will get you permanently banned from commenting at The Big Picture. The fastest way to lose posting privileges is to misrepresent your host’s complex and nuanced views in some inane bumper sticker comment. Those who do this, be advised: I’ve read your prose and considered your thought process: Suffice it to say the literary world will suffer no harm for your deletion (Robert Frost’s legacy is safe).
Other fast tracks to getting banned:
– Knowingly posting false or malicious material;
– multiple postings under different names;
– generally engaging in troll-like behavior;
– misquoting your host/overlord;
– being impolite in the extreme;
– ad hominem attacks;
– being an asshole.
Right now, someone is reading this and saying to themselves “What does he mean, being an asshole?” If you wondered that to yourself, well the odds strongly favor that you yourself have sphincter-like qualities. Thus, you should consider it likely that you will be banned as a rectoid from posting comments sometime in the near future.
It was refreshing that Sir James posed the question (at least rhetorically) of what would be better in the long term.
In banking and economic policymaking, as in many of life’s ventures, there is an eternal conflict between short- and long-term benefits. It seems that the Greenspan/Bermanke bubbles and their ‘remedies’ so far have gone reflexively for short-term results at the manifest expense of the long term.
Full report..
http://www.hm-treasury.gov.uk/media/3/E/crosby290708.pdf
“In the early years of this century, mortgage-backed securities markets grew very rapidly and
became a very important source of funding for UK mortgage lenders. So much so that by 2006
such funding equated to around two thirds of net new mortgage lending in the UK. By the end of
2007 the total amount outstanding of UK mortgage-backed securities was £257bn as compared
with total residential mortgages of £1200bn. Investors in such securities were principally attracted
by their liquidity and intrinsically low risk of default and years of unprecedented innovation in
financial markets and apparently rapidly increasing liquidity resulted in explosive growth in
demand. The major investors were banks, their off balance sheet vehicles and money market
funds. By far the greatest demand came from outside the UK.
In July 2007, when credit markets faced a sudden and significant re-pricing of risk, new issuance in
these markets came to an abrupt halt. One year later, trading in the secondary markets continues
to be on much wider interest rate spreads than was hitherto the case. In time these markets will
stage some sort of recovery but I am firmly of the opinion that in the foreseeable future, there
will be very little new issuance of UK mortgage-backed securities.”
Mortgage markets are adjusting to the shortage of funding. Lenders are seeking to re-price
existing mortgages but this is a slow process which will take two or three years to run its course.
This will itself cause an increase in defaults, which are in any case on the increase, if from
historically low levels. In time however, I expect that the increase in prices will more than
compensate banks for higher credit losses. In the meantime, it is hard to see why banks will
increase their currently depressed appetites for risk. While there is still good availability of finance
for those borrowers who offer significant security (i.e. have reliable earnings and seek to borrow
75 per cent or less of the value of their property), the availability of finance to all other
consumers is considerably reduced and likely to remain so.”
“The amount of RMBS and covered bonds maturing in each year from 2008 to
2010 is estimated at around £40bn (Table 4.1), although this is very difficult to
determine with any precision. In context, this figure would equate to around 5 per cent
of the stock of UK banks’ interbank liabilities at end-2007, and more than two thirds of
the net new mortgage lending projected by the Council of Mortgage Lenders in 2008.”
Northern Rock had problems with rolling its securitisations.
Report has some good stuff… and topically looks at European covered bonds market.
Thanks for sharing this info post.