Over-reaction to the crunch has led to worrying imbalance in underwriting

14 June 2010

The credit crunch and the subsequent over-regulation and over-reaction has created an imbalance that is troubling. Mortgage applications are failing despite evidence that borrowers’ temporary financial problems are genuine and unforeseen. We recently had an employed customer who
was able to evidence an exemplary payment record before and since his heart attack at the age of 45 last year.

His LTV was less than 50%, his requirements were sensible and he was looking to reduce his outgoings substantially. In short, it was
a perfectly good transaction but it was declined by the mortgage market.

If it’s true that the Financial Services Authority has influenced lenders so much, can someone please explain to me how a customer who in
March 2009 remortgaged with Swift to avoid a repossession order with GE Money Home Lending is now in receipt of an Abbey offer at 77% LTV?

The two transactions are like chalk and cheese - the market has clearly not learnt from its experience.

We also have a customer with an unencumbered property in search of £11,000 for debt consolidation.

Again the industry has turned down an employed applicant who has an absurdly low LTV looking to take out a product that would have reduced their outgoings.

The regulator may want to look at the effect it is having on underwriting decisions being made throughout the lending industry.

No amount of documentation to support mortgage applications will persuade lenders that anyone with a minor blip of adverse credit is worth lending to in the present environment.

If you have ever been sick or in a difficult situation for a short period of time, welcome to the brush that tars you as a sub-prime borrower.

The regulator may want to take a look at the effect it is having on underwriting decisions that are being made throughout the lending industry

This is a massive over-reaction that the industry and its regulators should address immediately, without fear of having the discussion.

Historically, a lack of funding would push borrowers towards higher rate unsecured lending. But a worrying trend today is the increased presence of bridging-type products whereby there is a worthless promise to remortgage the bridging loan when the market improves.

To the industry, lenders, underwriters, compliance managers - please allow sense to return.

To the regulator I’d like to say that the horse has bolted but locking the stable door, throwing away the key and bricking up the door may not be the best response. An open debate on the restrictions that introducers are experiencing may prove to be considerably more helpful.

And to any lenders or underwriters who believe I have misunderstood your mood, please feel free to contact me.

TONY MURTAGH
WEST COUNTRY INVESTMENT

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