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Specialist lenders need special help

I have a huge amount of respect for Tony Ward, chief executive of Home Funding. His clear understanding of the market changes that have taken place during this credit crisis is second to none.

So it was hardly surprising to read his clearly thought-out solution to the log-jam in availability of mortgage finance for borrowers in the UK.

Ward has identified a major issue in the excess stock of unsecuritised loans and removing these from the system would undoubtedly help refocus investor confidence.

But there is a danger that if the non-bank lenders were to rid themselves of their mortgages, the warehouse providers would simply withdraw their funding lines and leave these lenders no better off.

There is no doubt that the demise of the specialist lending institutions has been an inhibiting factor in the recovery of the housing market and ability of borrowers to obtain credit – largely due to the fact these innovative institutions were wholesale funded through the global capital markets.

Non-bank specialist lenders have been defiantly omitted from the government schemes to help the big banks and with limited methods of funding available, they have largely ceased to operate.

Some consideration also has to be given to ramifications of freeing up the warehouse providers and the crystallisation of value of the mortgage loans on their books.

Without the return of liquidity and investor confidence in the global markets, there will still be long term funding issues. Lord Adair Turner’s tone following the publication of his 122-page missive on how to save the UK banking system from a second financial Armageddon is reminiscent of a previous holder of his office at the Financial Service Authority.

I’m thinking of former FSA chairman Sir Howard Davis, who savoured the intellectual challenge of the job in the same way. But Sir Howard was a tad more realistic.

Do we really need a pan-European regulatory body and a more prescriptive approach to what we can and cannot do? And does the FSA need a regiment of new commissars to tell firms how to run their businesses?

If what we’ve been experiencing until now has been a light touch, I dread to think what the leaden hand of the FSA will be like.

The achievements of mortgage lenders should not be sacrificed on the altar of political expediency.

Writing in the Sunday Times, Vaclav Klaus, president of the Czech Republic – which holds the European Union presidency – warned against a solution of the kind the Prime Minister and Lord Turner are advocating.

“The crisis,” Klaus declared, “cannot be solved by restraining human initiative and putting further burdens on businesses. I propose the exact opposite: deregulation, liberalisation, removing barriers and unnecessary obstructive legislation at the European level.”

I’ll drink to that – but fear the worst.

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