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high regulatory and complaints exposure if things go wrong.”
some are more equal than others
Boulger is particularly concerned that the FSA has an unequal approach which will damage the market. “While we all recognise that there are some vulnerable people out there who do need help understanding and choosing financial products, the question remains - should you disadvantage the vast majority of borrowers who are quite clearly responsible and fully aware of the financial decisions they’re making because of the inability of the minority?” he asks.
doesn’t want to restructure the market and it doesn’t want to remove products in so many words – but it will. The FSA will achieve a different outcome from the one they’re trying to achieve. The approach is flawed.”
ProduCts Though this regulation is to go through a four month consultation period, it looks likely that the market will be free of self-cert mortgages and fast-track mortgages for definite, while the future of interest-only deals seems only a little less certain.
The rationale behind the regulator’s decision to impose proof of income requirements onto the whole of the
“THIS IS THE FSA IN ITS DEATH THROES. IF THEY GO ON WITH THIS LINE OF REGULATION, THEY WILL DEPRIVE SOME PEOPLE FROM BEING ABLE TO GET A MORTGAGE AT ALL, MORE PEOPLE OF A MORTGAGE THEY CAN AFFORD, AND IT WILL DRAMATICALLY PUSH UP COSTS”
“This is the FSA in its death throes. If they go on with this line of regulation, they will deprive some people from being able to get a mortgage at all, more people of a mortgage they can afford, and it will dramatically push up costs for lenders – and we all know where those costs will get passed.” Coogan says that the regulator wants
to prevent certain people from exposing themselves to excessive risk and that the easiest way to achieve that end is to control the products on the market and use the market to lock out those borrowers.
“They want to control those buyers, and stop them buying. It’s easier to control firms than to control consumers. And it’s easier to blame the firm if it goes wrong,” says Coogan.
“But we have to ask, what are the right measures to respond to that failure? I understand their approach, but it’s not going to produce a sustainable or flexible mortgage and housing market. The FSA
22 mortgage introducer AUGUST 2010
market was based on the desire to reduce the opportunity for brokers or borrowers to commit fraud by inflating incomes on mortgage applications, because arrears levels proved that it was these types of lending in the past which were particularly susceptible – as evidenced by arrears rates. But while the market has already written self-certification mortgages out of the picture of its own accord – and for this very reason stated by the FSA – the rationale appears to fall down on fast-track. “It’s bizarre to ban self-certification mortgages because of their high arrears and in the same breath ban fast-track because of low arrears,” says Boulger. “It’s the economics of the mad house. “Yes, where lenders are not robust enough that needs to be addressed, but certainly not by banning everyone from using whole product types, most of whom are responsible borrowers.” Ed Harley, director of mortgage policy
at the FSA, explained this dichotomy by saying that the regulator was concerned that fraudulent applications which had been going through the self-cert route would be re-routed through fast-track. “We need to ascertain a meaningful
affordability measure for all mortgages across the board and a good understanding of the borrower’s income is important,” says Harley. “We acknowledge that statistics show that borrowers on fast track loans showed lower than average arrears, but the concern is that in the past self-cert was a product through which higher risk loans were routed.
“If we apply income verification to self-cert and not fast-track, there is a worry that those higher risk loans may be re-routed through fast-track. That’s why we are applying meaningful affordability measures to all mortgages.” Sinclair expresses concern at this
approach however. “I’m concerned about the FSA’s attitude to fraud prevention and not about protecting the consumer,” he says. “There are already legal issues and processes around fraud and the regulator was always there to protect consumers. Now we’re seeing things that don’t achieve that wholly, there are some concerns.” Protecting the consumer is also about taking into account what they want, and Michael Coogan argues that the FSA has forgotten the most fundamental consideration for consumers: having a roof over their heads.
“The thing the FSA fails to recognise is that first and foremost consumers are making a housing choice. Whether that be private rental, social housing, or that they want the security and control of homeownership,” he says.
“People choose homeownership for a variety of reasons – perhaps because they can’t qualify for social housing, or don’t want to live at the behest of a private landlord. If they can pay off their monthly payments then homeownership is ultimately a sensible choice.” Coogan adds that in the past, homeownership was seen as a vehicle to pay off the mortgage and then leave the property in full to the children, whereas
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