Chris Ames (see London – Reuters 01.08.08) asset-backed securities portfolio manager at Schroders has come up with an eminently sensible proposal for restoring investors’ faith in the market for mortgage backed securities. He says that there should be a statutory definition of what amounts to a “Prime” mortgage-backed security.
As we have observed before, the reason the markets have seized up and mortgage funding become tight is that there is a lack of trust in these products as the default rates have not lived up to their often “triple A” rating. This is something Mervyn King alluded to before the Credit Storm broke when he said that the label on the champagne bottle was one thing but the contents might turn out to be flat when you opened it!
Ames reckons that if you have a label you can trust then it will be easier to persuade people to start investing again in “Prime” mortgages………..”Sub-Prime is, of course, another matter.