Crosby report calls for RMBS guarantees

The government is set to guarantee tranches of residential mortgage-backed securities following the release of the long-awaited Crosby report on mortgage finance.

Commissioned by chancellor Alistair Darling last April, the report investigates the impact of the credit crunch on the UK mortgage market.

Sir James Crosby, deputy chairman of the Financial Services Authority, interviewed lenders, investment banks, trade bodies, regulators and market researchers while compiling the report.

It suggests that the government should auction guarantees to attach to AAA RMBS to encourage greater transparency and standardisation and persuade investors that the securities market will return.

Sir James recommends that the guarantees must be used within six months of being bought and only on purchase deals including buy-to-let mortgages but not remortgage, sub-prime or high LTV products.

Sir James says: “There is a strong case for the government to intervene in mortgage finance markets with the explicit objective of containing the impact of the financial turmoil.

“My recommended intervention is the auction, during 2009 and 2010, of around £100bn of the guarantees set out in this report.”

A statement from the Treasury adds: “The government expects participating institutions to issue up to £250bn of guaranteed debt. The scheme is open for an interim period of six months initially for debt of up to 36 months’ maturity. These limits will be kept under review.”

Matthew Wyles, non-retail director at Nationwide, says: “This could help but it will take time. It also presupposes there are buyers who want RMBS. It won’t improve underlying access to funding, which is the problem.”