No quick fixes seen from key mortgage report

By Myles Neligan

LONDON (Reuters) - Government guarantees for mortgage-backed bonds and allowing lenders to swap loans for easily saleable government debt could be among proposed remedies for the ailing mortgage market in a report due out on Monday.

However, analysts say the report, authored by former HBOS chief executive James Crosby, is unlikely to offer any quick fixes because of the dramatic deterioration in the property market since it was commissioned in April.

"Nobody wants to fund a market where wholesale finance is hard to find and asset prices are going south," said Collins Stewart analyst Alex Potter.

The government asked Crosby to look into ways of revitalising the mortgage market as it became clear that a lack of mortgage funding was dragging down house prices with worrying speed. House prices have dropped around 15 percent since their peak last year.

His interim report, published in late July, said possible solutions included measures aimed at encouraging investors to resume purchases of mortgage-backed securities.

The mortgage-backed security market was an important source of funding for banks until the global credit crunch effectively closed it in August 2007, accounting for about two thirds of net new mortgage lending the previous year.

However, Crosby also said that doing nothing may be the best option as any government tinkering could "create more problems than it would solve."

Analysts say a relentless decline in house prices since April, triggering a steady increase in mortgage arrears, has made the task of kick-starting demand for mortgage-linked instruments more difficult.