Challenger Financial Services Group expects to be able to recommence lending from its $2.3 billion Howard Mortgage Fund if it wins the support of unit-holders for a restructure of the 25-year-old fund.Challenger has called a unit-holder meeting for 25 October, almost exactly two years after it stopped lending and imposed limits on redemptions. It will outline a plan for a significant return of capital and an ongoing liquidity structure.Along with a number of other mortgage fund managers, Challenger was caught by a wave of redemption demands when the Treasurer introduced the deposit guarantee in October 2008. It was the height of the financial crisis and investors were pulling their money out of investment products and piling it into guaranteed deposits.Challenger's proposal is to make up to 40 per cent of the fund's capital, around $850 million, available for redemption. The fund has 30,000 unit-holders with $10,000 or less invested. They will be offered a full payout by December.All other investors will be invited to make uncapped redemption requests and will be paid out on a pro rata basis. The ongoing liquidity arrangement is for 10 per cent of the fund's assets to be available for redemption each quarter. Instead of having to wait for periodic redemption windows, investors will be able to apply for withdrawals at any time.Challenger joint chief executive funds management, Rob Adams, said in a statement that adoption of the plan would see the fund start lending again. Adams said: "It's a good time to be a commercial lender. Our unit-holders will directly benefit from elevated lending spreads as well as a reversion to normal provisioning within the fund."Challenger is not the only mortgage fund manager improving its liquidity arrangements. Australian Unity Investments announced on 25 August that it had increased the monthly withdrawal facility for its Mortgage Income Fund from two to three per cent. It is also allowing unit-holders to put in a 12-month withdrawal order, so they don't have to re-apply each month.The recovery of the sector was marked by the news last month that the managed investment research group Morningstar had given the Australian Unity Mortgage Income Fund and the Perpetual Monthly Income Fund recommended ratings.Most analysts in the sector have had mortgage funds on hold. With some positive recommendations the funds may start to see some money flow, which would feed into the commercial loan market.