Dead horse rides to the rescue
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Proposed changes to mortgage regulation are poorly timed as well as being a shining example of locking the stable door after the horse has bolted, says Philip Tebbatt
There’s locking the stable door after the horse has bolted and then there’s locking the stable door after the horse has bolted, died of old age and long since been turned into glue.
That was my feeling when I read the Treasury’s latest paper, Mortgage Regulation - A Consultation which calls for responses to proposals including regulating buy-to-let mortgages and second charge loans.
Of course, I can understand that the mortgage teams at the Financial Services Authority have to be given something to do but is there anybody left out there who will be affected by these changes?
One of the key proposals, subject to the outcome of the consultation, is to transfer responsibility for second charges to the FSA. This is a relatively simple matter of changing the definition of ‘regulated mortgage contract’ as laid down in article 61(3)(a) of the Regulated ActivitiesOrder. Of course, we don’t yet have any details of the regime the FSA will then introduce.
One of the drivers for this move appears to be the difference between the Office of Fair Trading’s and FSA’s approach to monitoring advice, particularly given the report’s uncontroversial assertion that 90% of secured loan sales are advised.
The Treasury sees it as desirable to have consistency, particularly in relation to the arrears management process given that you can as easily lose your home whether your arrears are on a first or second charge.
The disappointment is that none of this is news. And while the document does not state this expressly, one can but wonder as to the extent to which the Treasury’s moves are motivated by concern that the crisis has forced increasing numbers of consumers into the arms of less desirable lenders.
If, as Council of Mortgage Lenders chairman Matthew Wyles has it, the FSA sees regulated brokers as “drug dealers at the school gates” ready to pounce on unsuspecting consumers, one can only speculate as to the Treasury’s view of brokers in the second charge market.
It is now suggesting that they should sign on to a register. And I guess they will also have to tell the FSA when they move. Will we also have the right to be told if a secured loan broker moves into our area? They seem to have been somewhat demonised.
But are things really any worse now than they were when regulation was introduced? Of course not.
The consultation also seeks views on FSA regulation of the buy-to-let market - again long overdue. As with the regulation of second charges, one struggles to think of anyone left to whom this might apply.
The paper points to the risks of market failure, particularly citing the impact of mortgage fraud on the rate of arrears and repossessions as perhaps precipitating market failure.
Would it be so wrong to suggest that the market has already come up with its own solution - simply not lending any more?
There is very little in the consultation paper that was not just as pertinent in 2004. In fact, the only bit that makes sense and is perhaps something which was not foreseen at the dawn of FSA regulation is the section relating to the protection of borrowers whose mortgages have been sold on. I’m sure we can all cite examples of special purpose vehicles dealing with borrowers they did not originate in circumstances nobody envisaged when a securitisation took place. It will be interesting to see how this unfolds.
But all the rest is long overdue, which places me uncomfortably on the horns of a dilemma. I’ve been calling for most of these changes for years - there is nothing in the impact assessment annexed to the paper which was not also true then. So for many consumers, one can’t help but think the damage has already been done.
But - and here’s my problem - given the state of the market, is this the best time to impose changes on an industry that has all but ceased to exist?
This might be the last straw for some firms and it’s all too late anyway - the regulatory equivalent of Shergar (pictured) riding to the rescue of someone who has already gone.
Philip Tebbatt is principal of niche finan- cial services law firm Slater-Rhodes and can be contacted at philip.tebbatt@slater-rhodes.com
