Focus should be on money markets, not on sub-prime


I was interested to read on Mortgage Strategy Online about Moore Blatch’s call for nationalised banks to provide sub-prime mortgages, stating that if necessary the government should force them to offer such deals.

The firm says that the number of those who would be classed as sub-prime is nearing one million. It argues that using nationalised banks to offer sub-prime mortgages would give these borrowers access to the property market they wouldn’t otherwise have.

But sub-prime lending will return in some shape or form as soon as the money markets allow. Without securitisation there will be little lending in the sector. Sub-prime borrowers will become an underclass, with lenders seeing them as untouchables. This will create a situation whereby lenders in effect hold clients prisoner.

There’s no way that nationalised banks could offer sub-prime deals as the outcry would be huge with the potential of a run on the lenders that did

So the government should focus on opening up the money markets rather than lend to sub-prime borrowers. The appetite is undoubtedly there, with many lenders rumoured to be keen to rejoin the market but prevented from doing so due to funding issues.

Anyway, there’s no way government-owned banks could offer sub-prime deals – the public outcry would be enormous, with the potential for a Northern Rock-style run on any lender that entertained the idea.

The new government must fix the liquidity problem, and fast, if we want to see any kind of sub-prime industry re-emerge.