FSA review may cost clients dear
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The Financial Services Authority’s Mortgage Market Review could lead to higher interest rates and product fees for borrowers, according to Fitch Ratings.
While Fitch welcomes proposals that would improve underwriting practices it says more stringent underwriting criteria could mean a significant change to some lenders’ practices. In turn, this may lead to applications costing more and being more time-consuming.
Robbie Sargent, director in the European structured finance operational risk group at Fitch, says the review is likely to result in manual underwriting for all mortgages.
He says: “The assessment of borrowing capacity along with the verification of income for all applications will require a detailed methodology and probably some form of manual underwriting for all loan applications.
“This will lengthen the application process and push up costs for lenders, which could be passed on to borrowers in the form of higher interest rates and product fees.”
The agency warns that the costs may also push lenders’ SVRs higher. It says there is a possibility that this increased cost could tip the balance for some customers, making loans unaffordable.
It has also expressed concern about the FSA’s plan to cancel the regular arrears charges applied by lenders if borrowers stick to arrears repayment plans.
Fitch notes that as the costs of arrears management, particularly in the sub-prime sector, are higher than those of performing loans the ban could lead to servicers and lenders charging higher interest rates or servicing fees.
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