CML news & views

While there were some excellent speakers at last year’s CML annual conference, none of them predicted quite how eventful the last 12 months would be! At tomorrow's conference, an equally impressive line-up will reflect on what’s happening currently in the mortgage market – and what might happen in the future.

In the last 12 months, we have seen the most acute financial crisis since the 1930s. No-one at last year’s conference forecast that by now some of the leading residential mortgage lenders would have gone out of business, or been partly or completely nationalised. Policy leaders have acted aggressively in response, to support financial markets and sustain demand.

After the storm

Although the theme of this year’s conference is ‘After the Storm’, we have carefully avoided saying whether we believe that we are now through the eye of the storm, or will pass it sometime soon. More than 350 of the most influential figures in the UK mortgage industry will have an opportunity at tomorrow’s conference to share their views on precisely where we are.

There are surely few better able to assess the scene than the London School of Economics’ professor of European history, Willem Buiter, who will give his view of the lending landscape. 

Professor Buiter was one of the few commentators who anticipated the recent 1.5% cut in the Bank rate, having urged the monetary policy committee before it announced its decision to pull out the stops to bolster the economy and reinforce consumer confidence. His analysis of recent events and views on future developments will be eagerly anticipated.

The politics of lending

Another highly respected commentator is Vince Cable, the Liberal Democrats’ deputy leader and shadow chancellor. His conference slot will focus on the politics of lending in 2009. In the current feverish political and media environment – and with the growing prospect of a snap election next spring – his analysis should spark a lively debate.

It was only around 18 months ago but, when Gordon Brown first became prime minister, he was advocating that home-ownership should extend to 75% of the population. He also pledged that three million new homes would be built by 2021, and that the environmental impact of housing would be reduced. Affordable housing remains one of his key goals, along with choice and quality for those who rent. 

To what extent can those aspirations now be fulfilled? What is the “right” level of home-ownership in the UK, and is it reasonable to expect it to grow over time?  Attitudes to home-ownership have changed as a result of recent events – but what are the consequences for the level of owner-occupation? Vince Cable’s views on these and other questions will be eagerly anticipated by delegates.

Another intriguing set of questions revolves around how regulators will respond to recent developments in mortgage and housing markets. Greater scope and power for regulators has been justified on the basis that “extreme circumstances have given rise to disorderly markets.” The aim is to “protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector.”

The regulatory debate

Tomorrow’s conference will pitch together Jon Pain, the Financial Services Authority’s (FSA) managing director of retail markets, and our director general, Michael Coogan. They will address a range of questions including:

• What will the FSA’s approach be to regulation and to the supervision of lenders in the aftermath of the credit crunch?
• How will it integrate treating customers fairly into its ‘business as usual’ approach in future?
• How can the FSA help lenders – and brokers – weather the storm?

It is now part of our folklore that the bug that started the current financial epidemic originated in the US mortgage market. But exactly how did it begin and how did it spread its virulence throughout the global financial system? At the conference, Tony Ward, chief executive of Home Funding plc, will analyse the similarities and crucial differences in the economies and mortgage market functions of the UK and US. He will outline the pattern of developments in the US, and examine the possible regulatory repercussions.

Debate and discussion

The events of the last year or so have had dramatic consequences for every aspect of the mortgage market. In order to explore how a range of different areas of activity have been affected – and how they might develop in the future – we are staging a series of breakout sessions. Delegates are free to tailor their own conference programme to take part in what we hope will be a fascinating series of debates and discussions:

• The market debate will scrutinise how the industry has been affected by conditions this year. It will also try to identify those that are best placed to weather the storm and make the most of market conditions next year and beyond.
• Another session, chaired by CML senior policy adviser Rob Thomas, will seek to de-mystify the funding crisis. When news of rising defaults in the US sub-prime market began to emerge in 2006, no-one imagined it would trigger the chain of events leading to a global financial crisis. The session sets out to explain the processes that have been at work, and look at what might be in store in the future.
• A session on high performance team management looks at what managers need to lead their teams successfully through the credit crunch, emerging ready to reap the rewards of improving market conditions. It aims to deliver practical advice on five key areas for successful team leaders: clarity, trust, curiosity, getting the right people, and deciding what is more important – the plan or its execution.
• Detecting and preventing mortgage fraud in the new environment comes under scrutiny in the ‘changing times, changing crimes’ session. It will look at the latest trends, and ask how we can share more meaningful information and whether advances in technology can help detect and prevent mortgage fraud.
• A final session considers policy options and alternatives to the funding gap. A decade of phenomenal growth in the use of securitisation, covered bonds and other wholesale funding instruments came grinding to a halt in the summer of 2007. We look at how and when normality might return, and examine what is needed from the government to manage the ongoing effects of the credit squeeze.

The conference will also focus on new and existing business opportunities. We ask what is the ‘new normal’ and will look specifically at issues like the strategic management of customers in the current market environment, dealing with arrears and possessions, and outsourcing. On new business, meanwhile, we aim to bring a fresh perspective to the enduring themes of product, process and distribution.

Towards the end of the day, we will change the pace with a session by motivational speaker Donald Cooper before Michael Coogan delivers his closing remarks and review of the year. He will give his perspective on current and future challenges for the industry.

Past – and future - achievements

He will remind the industry that, despite the most challenging operating environment that lenders have ever experienced, they can reflect with satisfaction on what they have helped to deliver successfully for 150 years and can continue to contribute in the future. 

A property-owning democracy could not exist without mortgage finance, and the vast majority who choose owner-occupation achieve security and independence. But lenders have always accepted the need for a balance of tenures and have contributed to the development of the private and social rented sectors, as well as home-ownership. They will continue to do so, but their capacity remains constrained by the biggest challenge facing the industry – the shortage of mortgage funding.

With another challenging year ahead, it is more important than ever to avoid kneejerk policy responses. An honest assessment of the challenges facing us is one that recognises that there are inherent conflicts in the demands to improve the flow of funding, be more lenient with borrowers in arrears and improve the capital position of firms.

As The Times put it last week, “it is hard to urge simultaneously cheaper loans and more prudence.” Lenders, it said, “need life support not populist shock therapy.”

Acknowledging policy conflicts

Politicians of all parties need to start acknowledging these contradictions and join the Bank of England, the Financial Services Authority and the industry in delivering a realistic assessment of the policy issues and conflicts confronting us. 

We agree with Mervyn King that the most pressing problem now is to get institutions lending again. We will use our role on the new government lending panel to work towards this and press for a more urgent implementation of the Crosby proposals.  Without an improvement in the flow of funding, there is a risk that Crosby’s fear of negative net lending next year will be realised.

The regulatory response will also be crucial. There is a real risk that regulatory initiatives add to the problems in the market, rather than helping to underpin stability, competition and consumer confidence.