Oh my Darling – Chancellor urged to follow US mortgage lead

09 September 2008 / by Rebecca Sargent
Chancellor Alistair Darling has come under pressure to rescue the UK's mortgage market in the wake of the US securitisation of mortgage giants Fannie Mae and Freddie Mac.

US Treasury Secretary, Henry Paulson made the announcement on Sunday that the US Government would be seizing control of Fannie and Freddie in addition to injecting as much as $200billion into the failing mortgage enterprises.

The move has since sparked a surge in stock market activity as confidence in the housing market receives a boost. However, despite the flurry of stock activity worldwide, the London Stock Exchange was forced to shut down for seven hours due to a computer system failure that put a stop to trading, on a day that had the potential to give the FTSE 100 the boost it so needs.

And, as the US Treasury is praised for it's no nonsense attitude, the UK Treasury has come under fire for its caution that resulted in a disastrous Northern Rock takeover. Darling is now being urged to take control and act now to protect the UK's failing mortgage and housing markets.

However, according to reports, the Chancellor is waiting for former HBOS chairman Sir James Crosby to submit his final proposals on how best to kick start the mortgage markets before he takes any action.

Commenting, director general of the Association of Mortgage Intermediaries (AMI) Chris Cummings, said: "This is the US endeavouring to fix capital markets in contrast to the announcement last week by the UK Government, which only sought to deal with retail markets. We urge Sir James Crosby to study the US action and to produce a considered and relevant response in relation to the travails of UK capital markets when he reports to the Chancellor in September. Work is needed to fix the capital markets and the US has shown the way."

The Crosby report is due later this month following preliminary reports, and is expected to focus on the Government's Special Liquidity Scheme (SLS) that was introduced in April this year. The Scheme was meant to inject £50billion into the frozen mortgage market, however, actual figures stand at nearer £200billion according to reports. Nevertheless, the Scheme has loosened the mortgage market and it is thought that extending it will be under serious consideration by the Chancellor.

The original SLS is due to end at the end of October, however, the Council of Mortgage Lenders (CML, whose members account for 98 per cent of residential mortgage lending, has already written to the Chancellor urging him to extend it. Other measures thought to be brought up in the Crosby report include a potential multibillion-pound plan that could see the Government temporarily guarantee high-quality mortgage lending, freeing up more capital for other mortgage lending.

However, as Defaqto's economist Michael Baxter argues, this could mean that lenders fail to learn their lesson about irresponsible lending. He comments: "At core, the credit crunch was caused by excessive risk taking. By saving Fannie Mae and Freddie Mac, the US Government has increased the chance that banks will not learn their lesson from this episode."

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