Lenders are pre-empting FSA rulings as they attempt to stay ahead of the game

5 July 2010

In the wake of the Financial Services Authority’s Mortgage Market Review there has been much comment and debate about what shape the final rules will take.

The normal procedure is to issue a discussion paper, consult on its findings and then introduce the final rules.

By doing this many of the regulator’s initial thoughts can be tempered or changed along the way in conjunction with industry views.

But I am getting increasingly concerned about the following trend - the FSA representative delivers a speech and in it they mention ’we need to
look more closely at…’.

This is followed by a few weeks of press articles.

Some time later our lender partners are champing at the bit to introduce new practices as if new rules have already been put in place.

Remember the reaction to the publication of the MMR in October - and don’t forget this was a discussion paper, with a feedback statement issued in March 2010.

In February we saw Abbey introducing restrictions on fast-track and tightening requirements on proof of income merely on the basis of the FSA’s negative opinion of self-cert.

I use Abbey as an example of the danger of trying to pre-empt the regulator but of course, its lead was followed by other lenders. So effectively, the opinions of the FSA are being enforced without the need for a rulebook. We are now seeing another area of discussion around interest-only loans.

In a speech to the Council of Mortgage Lenders on June 18 Lesley Titcomb, then director of small firms at the FSA, stated that “interest-only is now biting the market and impacting it significantly”.

The regulator should curtail the volume of its comments on lending and give a lot more thought to the way it expresses itself in public

Almost immediately these comments were taken on board, with lenders falling over themselves to restrict interest-only or remove it as an option. And the consultation paper hasn’t even been produced yet.

Significantly, at the same time the FSA has been commenting on arrears handling. In many situations the first port of call for borrowers under financial stress is to move to an interest-only loan rather than run into arrears, with all the implications for adverse credit files.

Instead, we now see many clients who, knowing they are likely to miss payments, are asking their lenders to switch to interest-only, only to be refused until they can prove they are unable to meet payments - i.e. they are already in arrears.

Many commentators have been urging that no further regulation should be introduced until at least the end of the year and yet the merry-go-round I have highlighted ensures that rules are being applied without adequate discussion or industry agreement.

The FSA should be curtailing the volume and tenor of its negative comments with regard to mortgage lending, and giving a lot more thought to the way it expresses itself.

MICHAEL NORWOOD
MORTGAGES MADE EASY

 

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