In a paper entitled Kick-Starting the Mortgage Market – a path for recovery in the wider economy Ward calls on the government to attach guarantees to mortgages between 75% LTV and 95% LTV.
He argues that these guarantees would be paid for either by borrowers or lenders, with lenders sharing risk in the event of claims.
Ward also wants to see the market cleared of surplus mortgage-backed securities by extending existing schemes such as the Asset Purchase Facility to non-banks and specialist lenders.
He says: “LTV guarantees would address the question of how to get mortgages to the borrowers that need them. The beauty of this plan is that it would apply equally to banks, building societies and entities using securitisation models.
“Also, it’s easier for the government to justify spending taxpayers’ money on helping the man in the street to borrow rather than propping up big banks.”
Steve Khan, proprietor of The Mortgage Trading Consultancy, says Ward’s plans seem to be well thought through and acknowledges that so far non-banks have been omitted from funding support.
But he adds: “There is a danger that if non-bank organisations were able to rid themselves of their current books of mortgages warehouse providers could simply withdraw their funding lines and leave the lenders no better off.
“Also, Lord Turner’s report advocates reduced reliance on wholesale funding and that securitised structures should be on-balance sheet, making the funding model of specialist lenders even less viable.”
Danny Lovey, proprietor of The Mortgage Practitioner, says: “The vast majority of business being done at the moment is prime.
“Specialist lending is unlikely to play a significant role for the foreseeable future so the priority of any initiative should be to get the prime sector moving again.”