CML calls for focus on mortgage funding

28 January 2010 | By Natalie Thomas

The CML has today published its formal Mortgage Market Review response, as well as a separate detailed report on the outlook for mortgage funding in the UK between 2010 and 2015.

The trade body has argued that with some of its proposals the regulator is overreacting without evidence to justify their actions.

It cites the requirement for income verification and the resulting ban on fast-track as an example of the FSA’s overreaction.

In its response to the MMR, the CML provides evidence that arrears levels on fast-track business do not justify a requirement ofincome verification in all cases.

Its wants fast-tracking to continue, but with the addition of appropriate safeguards.

Michael Coogan, director-general of the CML, says: “The FSA needs to moderate its approach to ensure that regulation does not layer in worthless additional cost, or have the undesirable side-effect of creating financial exclusion among swathes of borrowers who may be perfectly able to sustain a mortgage commitment.”

It agrees with the FSA’s plans that lenders, rather than brokers, are ultimately responsible for assessing affordability, but says more needs to be done to define the responsibilities of both brokers and lenders.

The CML also suggests that, to address the perceived problem of “irrational” borrowing, higher risk borrowers should potentially be given money guidance before making mortgage decisions.

On funding, the CML says that up until now government measures have focussed on bank capital and liquidity, rather than developing a sustainable funding model for mortgages.

“There is a real risk reforms may be at best irrelevant, or at worst may damage a fragile market at the wrong time, unless they are accompanied by a strategic plan to achieve and sustain stable mortgage funding markets for the future.”

Michael Coogan, director-general at the CML

It claims this has lack of support has led to a distortion of competition and risks exacerbating moral hazard.

The trade body says that government funds have so far attempted to bridge a £300bn funding gap, but these schemes are due to expire in several years, and that the retail deposits will be enough to fill the gap.

The CML says that unless this issue of mortgage funding is tackled it is likely that the mortgage market will shrink, making conduct of business reform by the FSA “largely irrelevant for the forseeable future.”

Coogan adds: “The FSA’s planned reforms are well-intentioned, even if their implementation is a source of concern.

“But there is a real risk that they may be at best irrelevant, or at worst may damage a fragile market at the wrong time, unless they are accompanied by a strategic plan to achieve and sustain stable mortgage funding markets for the future.

“We call on the Treasury today to make this plan of action a high priority.”

The trade body also argues that securitisation has worked well in the UK, despite a lack of goverment support and the problems associated with residential mortgage-backed securities in the US.

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