CML sets out its agenda for the mortgage summit

With the G7 meeting in Washington over the weekend and a lenders summit with Alistair Darling planned for next week, CML chairman Steven Crawshaw used his address to the Council’s annual lunch in London on Friday to urge the Bank of England to lead a global action plan to alleviate turmoil in the financial markets and to lay down its position ahead of the talks.

The summit is in addition to separate talks that Gordon Brown and Alistair Darling are to have with the leaders of the UK’s biggest banks at a meeting in Downing Street on Tuesday 15 April.

Crawshaw, whose Bradford & Bingley mortgage bank was to spend the weekend denying a rights issue press story (itself a symptom of the current market turmoil), called on BoE governor Mervyn King to coordinate action between international central banks such as the European Central Bank and the US Federal Reserve.

He said: “We urge you, governor, to show leadership in the proactive coordination of central bank responses globally to the current systemic risks.

“And in the UK, deliver on your recent hints to the Treasury Select Committee that you would be prepared to be more flexible. The main short term palliative is in the hands of the Bank of England, and there is a real and immediate need for broader based action than we have seen to date.”

He said that the key issue was to identify the interventions by the tripartite authorities, in collaboration with the mortgage industry that could help rather than hinder the market.

“I suggest there are several steps needed on the part of the Bank. It needs to realise that the underlying problem may not be the one it thinks it is. Compared to the actions of the Federal Reserve in the US, our central bank stands accused of having been cautious and slow.
“The bank has diagnosed the overhang of assets as the disease. We see it as a symptom.

“It believes that institutions are hoarding liquidity because they do not trust other banks and so are reluctant to lend to each other. We think that lenders are hoarding liquidity because they’re concerned about whether they will be able to access future funding and are managing pipelines of business very cautiously.

“They’re worried less about the here and now and credit risk in the UK mortgage market, than the uncertainty about whether they’ll be able to get funds when they need to refinance their own maturing debt commitments and new mortgage offers they are seeking to make.

“If our diagnosis is right, then deeper and longer term repo facilities – extending beyond the three-month facility to 12 months or perhaps even 24 months – would definitely begin to help to address lenders’ concerns. 



“And kick-starting the market for new issuance of mortgage-backed securities – perhaps by incentivising the kind of stable, domestic investors such as pension funds that would fit this market well – is something that the CML believes the Bank should seriously consider.

“If we await the return of global investors without taking action to reinforce why our market is different to the United States, we must accept that our new business levels will shrink substantially and for a significant period of time.

“As we have said this week, without attracting new funding sources, we will see an ongoing process of attrition in mortgage choice, possibly over a protracted period, with lenders managing down demand by tightening lending criteria, increasing price, or withdrawing more products from the market altogether. This is not lender specific but across the piece – large and small; specialist and mainstream; Plc and mutual.

“So today my message to Mervyn King is this. We urge you, governor, to show leadership in the proactive coordination of central bank responses globally to the current systemic risks. And in the UK, deliver on your recent hints to the Treasury Select Committee that you would be prepared to be more flexible. The main short term palliative is in the hands of the Bank of England, and there is a real and immediate need for broader based action than we have seen to date.

“To the chancellor, this message. We welcome your appointment of Sir James Crosby to lead a group including the CML and lenders to address funding problems, including the mortgage backed securities market. In terms of timescale, recommendations by the time of the Pre-Budget Report would simply not address the urgency of market difficulties now, nor reverse the shrinkage of the market I referred to earlier.

“But I very much hope that the interim report in the Summer will point us in the right direction so we can take early steps to address the market dysfunction.
“As the CML has said many times, it would be good for the Government to continue to remind people that the UK mortgage industry has been and remains a major asset to UK plc and our economy.

“This will certainly be a central message when the CML meets government ministers shortly.

“We welcome contact with the government to discuss the position our existing customers – their voters – find themselves in We remain concerned that we still see two big problems – the inadequate state support scheme for mortgage borrowers and the absence of the regulation of sale and leaseback companies.

“Underpinning those borrowers in serious and short term financial difficulty to help minimise the level of repossessions is a clear spend to save policy.

“Yes, it has a short term cost in the form of higher benefit payments, but it delivers tangible longer term returns from helping people get back on their feet, supporting communities, and avoiding the likely higher costs of re-housing and housing benefit support.
“We look forward to continuing the close dialogue we have had with government ministers and officials. 
And no CML speech would be complete without a plea to the Financial Services Authority.