The government bank bailout plans don’t go far enough according to Exact Mortgage Experts. ABS guarantees are commendable, says Exact, but they will fail to unlock the gridlock in the mortgage market. In a research note published today, Exact claims the creation of a bad bank is the only way to restore confidence in the financial system and repair the mortgage market. Continued exposure to toxic assets is obstructing lenders from offering credit to businesses and individuals.
Alan Cleary, Exact managing director, said, “The root of the banks’ problems is their innate lack of trust for one another. As long as there are toxic assets on balance sheets, fear of further writedowns is going to bung up the mortgage markets and choke new lending. The government plans to guarantee these potential losses are laudable, but they just don’t go far enough. We need a bad bank to house these toxic loans – it’s time for the government to get serious about helping the mortgage industry.”
The Exact white paper also asks how the government proposes to value asset backed securities – a key consideration for the government if it is to implement its proposals successfully. The government has said it will guarantee AAA rated securities, but Exact points out the reason ABS have been written down so heavily is due to the lack of transparency and understanding of underlying risk. Establishing a fair value for these assets is part of the problem.
Alan Cleary continued, “The value of ABS keeps plummeting – that’s why banks need them off their books once and for all. It will take away fear of the unknown. If the government is committed to untangling this mess, they need to show it hook, line and sinker. A bad bank is the only reliable option.”
Download the Exact white paper research at www.exact.co.uk.
