UK told do not copy Fannie Mae type firms

By Matt Falloon

LONDON (Reuters) - Britain should not create its own Fannie Mae and Freddie Mac-style mortgage finance firms to revive the mortgage market, an interim government-sponsored report by former HBOS chief James Crosby said on Tuesday.

Final recommendations from the report, commissioned in April, are expected before the government's pre-budget report later this year with speculation growing that banks could be allowed to swap new mortgage debt for government securities.

That would extend an existing scheme, also introduced in April, which allows banks to swap hard-to-shift mortgage assets for government debt only if the mortgages were on their balance sheets at the end of 2007.

However, the option of doing nothing also remains on the table and Crosby has advised against the introduction of U.S.-style government-sponsored enterprises that purchase, guarantee and securitize mortgages.

"Much has been said about the case for launching a U.S.-style agency but it seems unlikely that it would be right to tackle this century's problems with last century's solution particularly given the time it would take to create any such agency," the report said.

The U.S. authorities had to step in this month to prop up Fannie Mae and Freddie Mac after panic erupted among their investors over the mortgage companies' solvency.

Crosby's interim report provides an analysis of how the mortgage markets became disrupted and what range of possibilities exists to ease the crunch.

Mortgage lending has fallen sharply in Britain this year as the credit crunch forces banks to toughen up their lending terms to would-be house buyers.