The UK is a country with a state religion: the housing market. One of its former high priests, Sir James Crosby, a former chief executive of the mortgage bank HBOS, has delivered a report on how to reform the mortgage market. His main proposal aims to prevent a necessary downward adjustment in house prices from turning into a collapse. The plan is well-designed but its objective is doubtful, and it risks distracting the UK government from more important objectives.
FT.com – 25 Nov 2008
The most significant measure suggested in the Crosby report is that the government should sell £100bn of guarantees on mortgage-backed securities for new mortgages issued over the next two years. Should any of the guarantees be called on, however, the government would charge the mortgage lender for the expense.
This is not an attempt to return to the reckless lending of previous years. Sir James proposed that guarantees should be sold only for high-grade, low loan-to-value ratio mortgage securities and covered bonds. Investors would have cast-iron guarantees that mortgages will be repaid, but his scheme would also keep the mortgage issuer liable for the repayment of the mortgages, thereby reducing incentives for it to be careless. Full Article
