Lenders want Bank to help solve funding woes

LONDON (Reuters) - Britain should revive the market for new residential mortgage-backed securities (RMBS) and covered bonds by allowing investors to swap the securities for liquidity backed by the Bank of England, mortgage lenders said on Tuesday.

The Council of Mortgage Lenders (CML), which represents banks, building societies and other lenders, said a swift move in the RMBS and covered bond markets would ease the funding pressures currently crippling the mortgage market, relieving households and the wider housing sector.

Mortgage lending is set to halve this year, with many new borrowers unable to secure loans.

"The single biggest issue in the housing market that the authorities need to address is the lack of available funding to support new mortgage lending," CML Director General Michael Coogan said in a statement, urging swift action.

In proposals submitted on Tuesday, the CML said investors buying new UK RMBS and covered bonds -- not covered by an existing liquidity scheme, which applies to older mortgages -- should be allowed to swap those through a repo facility, essentially a form of secured lending, to be offered by the Bank.

The CML said the plan, submitted to the Treasury and to the team preparing a long-awaited review of the mortgage market, would encourage a market solution by bringing investors back to the funding markets, with the BoEngland simply acting as a catalyst to restore market confidence.

"A year into the credit crunch, there is no merit at all in waiting until the autumn before taking steps that will help the housing market to remain more resilient," Coogan said, adding there was currently a "window of opportunity".

Under the CML proposal, the repo facility would be available for up to 12 months and would stay in place until markets can function normally without support. It said the facility would apply to tranches rated AA- or higher.

RMBS and covered bonds would first be sold in a public issue, helping to establish a market price benchmark.