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News - Industry
Securitisation must return: experts
Mortgage Solutions | 25 Mar = 2010 |=20 14:31
Experts at a landmark conference held at The British Library in = central=20 London have agreed that securitisation needs to return to the mortgage = market.=20
Speakers and attendees at the event, Funding the UK Mortgage = Industry,=20 concurred that new solutions must be found to raise wholesale funding, = with a=20 revival of the residential mortgage backed securities (RMBS) market a=20 cornerstone.
Tony Ward, managing director of Home Funding and the driving force = behind the=20 conference, said: "Securitisation will re-emerge - it has to".
He pointed out that Adair Turner, the chairman of the FSA, while = making=20 =E2=80=98harsh' comments about RMBS in an address at Cass Business = School last week also=20 said that securitisation was very likely to play a role going = forward.
Ward also quoted Bank of England Governor Mervyn King's recent speech = to the=20 Treasury, in which he said that it is "vital that firms revise these=20 [securitisation] strategies" in order to plug the gap which will be left = when=20 the Special Liquidity Scheme comes to an end.
Rob Thomas, senior policy adviser at the CML, said measures need to = be taken=20 to encourage domestic investors to buy into RMBS. He claimed that since = the=20 credit crisis, the tripartite of the Treasury, the Bank of England and = the FSA=20 has adopted a =E2=80=98wholesale funding bad' attitude, which risks = blinding it to the=20 benefits of securitisation.
Thomas insisted: "There is an opportunity here - the question is how = you get=20 UK institutions to buy UK mortgage paper."
Thomas pointed out that pension funds, for example, prefer = longer-term fixed=20 paper than is currently available, and suggested that it might be worth=20 revisiting the Miles Report, which looked at the possibility of the UK = mortgage=20 market moving towards longer-term fixed rate mortgage borrowing.
Robert Plehn, head of securitisation at Lloyds Banking Group, said: = "There is=20 a big debate to be had. The Government thinks that UK funds can support = a=20 recovery in the mortgage market. I don't buy that. I think we need to = look=20 abroad and bring back external investors into the market."
Plehn pointed out that UK RMBS look very attractive compared to = American=20 RMBS, because the underlying mortgages here are far higher quality than = US=20 mortgages.
Lloyds issued a securitisation in January which included a = dollar-denominated=20 tranche which was very popular with American investors.
Plehn added: "There is a lot of potential for selling UK RMBS to US = investors=20 because the quality of the product is superior. The challenge is getting = US=20 investors to engage with us in the first place."
Conference attendees also agreed that the proposed end dates for the=20 Government's support schemes are unrealistic. The Special Liquidity = Scheme,=20 which has so far provided =C2=A3185bn of relatively cheap funding to = mortgage=20 lenders, is to be withdrawn and the money must be repaid to the Bank of = England=20 by 2012. Under the Credit Guarantee Scheme, =C2=A3134bn worth of = redeeming bonds need=20 to be refinanced by 2014.
Thomas said: "It is not obvious to me that the capacity is there to = repay the=20 schemes under the current timescales. Even with growth in retail funds = of =C2=A360bn=20 a year, it would still take five years to fill this funding gap."
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