James Crosby, former head of HBOS, delivered his interim report on the state of mortgage finance in the UK to the government on July 29. But it does not make for good holiday reading. Despite outlining the extent to which lenders have completely withdrawn from the market and the effect that the shortage of mortgage finance is having on the housing market, Crosby emphasizes that his final recommendation might well be to do nothing. "I should stress that I may yet recommend that the government should not intervene in the market, on the grounds that such intervention would create more problems than it would solve," he says.
The industry initiatives that have been announced will also not be sufficient to bring the market back to life, Crosby warns. "Everyone is clear that UK mortgage-backed securities would benefit from greater transparency and standardization... however, I doubt whether, on their own, such initiatives will do much to increase the demand for mortgage-backed securities." He says he is considering whether or not action such as the government guaranteeing the principal and interest on new RMBS issues might be necessary but ruled out a US-style mortgage agency, saying it was wrong to tackle this century’s problems with last century’s solution.