Bank of England head of financial stability Andrew Haldane has given his backing to securitisation, saying it does not need to be the “bogeyman” of the finance industry.
Securitisation – the bundling up and selling of mortgage debt to finance lending – was widely blamed for causing the financial crisis, which caused investors to shy away from investing in anything backed by mortgages.
This led to a dramatic tailing off in the number of RMBS issues. Figures from ratings agency Standard & Poor’s show there were 57 residential mortgage-backed securitisation transactions in 2007.
By 2009 the number of securitisations fell to a low of 11, although the securitisation market has recovered somewhat since then, with 26 transactions taking place last year.
Experts argue European securitisation was not to blame for the financial crisis and it was the lax lending and securitisation practices in the US which were to blame.
And now Haldane has come out in support of securitisation, a key form of mortgage funding, saying stricter mortgage underwriting practices coupled with less complex RMBS structures could make securitisation a “financing vehicle for all seasons.”
He told the Financial Times: “In a world where we are squeezing risk out of the banking system we would want a simple, safe, vibrant set of channels for non-bank financing to emerge and securitisation is one of those.
“We are talking about simple and safe structures, rather than complex and shadowy ones.”
UK lenders OneSavingsBank and Precise Mortgages completed securitisations in October and November, prompting Home Funding chief executive and securitisation expert Tony Ward to predict that the UK could witness a “regeneration of the underlying core securitisation market”.