The Australian Securitisation Forum released a discussion paper yesterday recommending that the Australian government set up a body to issue government guaranteed mortgage bonds.The ASF argues that government needs to get involved in the mortgage industry to restore liquidity to the securitisation market and maintain diversity and efficient pricing in the mortgage market.ASF executive director Greg Medcraft said the government should study the example of the Canadian Mortgage and Housing Corporation, which has issued C$120 billion of Canada mortgage bonds since 2001. Medcraft recently stepped down as managing director of SG Cowen, a Societe Generale subsidiary in the US.The ASF's paper is the second report in as many weeks urging government to take steps to restore liquidity to the securitisation market.A policy proposal written by Melbourne University Business School professor Joshua Gans and Rismark managing director Christopher Joye argues for similar action. The Gans and Joye paper advocates an entity modelled generally on CMHC as well as  the government sponsored institutions in the US, Fannie Mae and Freddie Mac.The ASF sent its paper to the Treasurer yesterday with a recommendation that a taskforce be set up to develop the idea. Medcraft will be a delegate at the 2020 summit this weekend and will pursue the idea there. Gans will also be a delegate.The Canadian Mortgage and Housing Corporation acts as an intermediary between mortgage originators and investors. Issuers sell their mortgage-backed securities to CMHC, which packages them together and issues Canada mortgage bonds.The CMHC guarantees timely payment of principal and interest on the bonds. Backed by government guarantee the bonds sell on tight spreads. A C$11 billion issue of CMB was priced two weeks ago at 58 basis points over Canadian treasuries. To participate in the CMB program issuers can only offer prime mortgages with loan to valuation ratios up to 80 per cent. They must hold reserves equal to two per cent of their securitisation as a buffer. Medcraft said: "If there is an issue in terms of the quality of their issuance CMHC has recourse to the reserve."Ratings agency Standard & Poor's has issued a response to these proposals saying they are predicated on the questionable premise that the securitisation market is dead. S&P said: "To say that the market for RMBS is dead and will not return is a big call. What we have is a period of dislocation in credit markets that will not last indefinitely."S&P said the crisis would be over before any government owned or backed institution could get off the ground.Medcraft said it would take a year to set up a local organisation along the lines of the CMHC.S&P said there was plenty of demand for RMBS at the moment but it was being met by heavily discounted securities in the secondary market and not primary issuance. The cheap stuff being sold by SIVs would not be around forever and sooner or later issuers would get back into the market.Medcraft said most responses to date had been positive. He said the ASF model