AMI publishes white paper on credit crunch solutions

The Association of Mortgage Intermediaries (AMI) has published a white paper on credit crunch solutions for the mortgage industry.

The white paper sets out the causes of the credit crunch as seen by the mortgage intermediary community, establishes what the impact of the current turmoil will be on firms and borrowers and provides a series of starting points for addressing the market's problems.

Chris Cummings, AMI Director General, said: "This white paper sets out a series of possible steps towards addressing the current market issues. AMI has always seen its role as coming up with solutions to problems, and by proposing policy, helping those who must make difficult policy decisions. The alternatives set out in this paper are "green shoots" - we want to build a coalition of the willing across industry, regulation and public policy to nurture them into "sturdy oaks".

Alternative Sources of Capital

The AMI white paper suggests that the issues faced today stem more from confidence problems than liquidity. Exploring new areas of funding, particularly Sovereign Wealth Funds could help lift one of the current constraints.

Chris Cummings added: "It is essential that the market comes together in order to find a solution. To that end we propose a joint approach be made to a carefully vetted selection of Sovereign Wealth Funds with the idea of attracting investment in the UK mortgage market. The group making this approach should be facilitated by The Department for Business, Enterprise and Regulatory Reform (BERR), to help secure confidence in Sovereign Wealth Funds.

The Role of the Bank of England (BofE).
AMI has explored the option of the BofE providing additional liquidity into the market and relaxing criteria for lending between banks. However this must come with the caveat that any funds released must be beneficial to borrowers and not be hoarded by lenders in order to improve their capital or meet FSA requirements. AMI strongly feel the measures announced by the BofE today were long overdue and do not go nearly far enough.

Chris Cummings continued: "We call on the Crosby Mortgage Finance Taskforce to urgently work with the Bank of England to review current liquidity criteria; this must be brought into line with that of other central bankers. . We must also see the BofE plans to finance extra liquidity introduced with a long term focus. A one to two year timescale is insufficient as we need a long term solution.

A Gold Standard for Mortgage Backed Securities (MBS)
The third intervention calls for the BofE, Treasury, Financial Services Authority (FSA) and the Crosby Mortgage Finance Task force to work together on a rapid creation of a new 'Gold Standard' for MBS, which would enable assets to be drawn from a mix of securities. Establishing this on a given date would enable certainty within the market and an ability to re-price lenders' back books. AMI also suggests that assets which could not be traded should be managed by the National Debt Office or the BofE.

Traditional buyers of Mortgage Backed Securities (MBS)

AMI proposes that the industry should look to re-engage with those who historically used to purchase MBS such as Pension funds and Life Offices. The current regulatory constraints and economic pressures that now make this difficult need to be addressed.

Chris Cummings said: "At this time it is important that the regulator stops deterring the purchase of MBS and those who once viewed MBS as part of the investment strategy, should revisit this market with a view to re-entering.

"We strongly feel that that mortgage market has passed the stage where it is able to heal itself and find a resolution to the current crisis that is why we have taken the decision to publish a White Paper calling for outside intervention. If the market carries on as it is, consumers will continue to suffer as the availability of suitable products will begin to dry up and the industry will continue to shed jobs at an increasing rate. This will open up the potential for a shortage of qualified advisers, at a point in time when they are most needed.

"The greatest impact will always be with consumers who may find themselves restricted in the mortgages on offer, forced to deal with just the few largest players, being offered less competitive mortgages, and finding that advice is far harder to come by."