Cloak and dagger approach to MMR

23 March 2010 | By Natalie Thomas

The list of respondents can be found at the end of the regulator’s feedback statement and shows the broad mix of contributors.

There are the usual suspects in there such as Association of Mortgage Intermediaries, The Building Societies Association and the Council of Mortgage Lenders.

But there are also some more surprising contributors, such as Glasgow City Council and New York University, which just goes to show how much attention the FSA’s proposals have received.

The FSA does not publish individual responses from lenders and brokers in its feedback statement, so it raises the question as to why a lender or broker would need to submit a response confidentially.

Out of the submissions the FSA did receive, issues such as a ban on the high LTV or LTIs, seemed to receive consistent feedback from lenders and brokers. They both felt any ban would harm the industry and restrict those who could afford to repay the loan.

But other areas that caused some conflict included who should hold the overall responsibility for affordability and advised sales.

The overwhelming majority of respondents agreed that lenders should take overall responsible for affordability.

However, many were concerned that making the lender ultimately responsible for the lending decision could be interpreted as implying that intermediaries, other professionals and crucially consumers, have no responsibility at all.

As a way to avoid such consequences, some respondents suggested that the FSA makes the underwriting decision more transparent by ensuring the lender discloses the affordability assessment and requiring the consumer to take responsibility for the truthfulness of the information provided.

Which brings the industry back to the question of who should take responsibility for making the financial decision. Like everything in life, the right tools in the right hands can work wonders, but the right tools in the wrong hands can cause havoc.

It will be interesting to see if the FSA follows through on the advice offered by the industry. If it does decide to make the consumer partly responsible for assessing their own affordability, it could be playing a dangerous game, and it would certainly give lenders a cast iron defence if they were faced with increasing mortgage fraud allegations.

One topic that has split lenders and brokers is that of advised sales.

Brokers have supported moves to create a fully advised market while lenders are more cautious.

Some lenders support a ban on non-advised sales for intermediaries and one nameless lender suggested execution-only sales as an alternative to non-advised. Several respondents, including lenders, supported advised sales as the default route for vulnerable consumer groups, such as first-time buyers or those in financial difficulty.

A small number of other respondents, including lenders, supported advised as the default route for all consumers, with an opt-in facility for non-advised.

When it comes to labeling what advice is given, many felt the descriptions that were given to the types of advice were not as important as the definition of advice itself.

Platform Home Loans is currently spearheading a campaign to educate the public on the advantages of using brokers for mortgage advice.

It has called on the mortgage industry to back the campaign and help in developing a definition of what it means to give advice. Mortgage Strategy has launched a campaign called Define Advice to find out what the industry thinks.

In the MMR feedback many intermediaries argued that any new landscape needed to ensure intermediaries only consider those products that are available to them. At best, these would only ever be a ‘fair and representative’ sample of the products and not all those available across the market.

This off course would rely on a re-emergence of a buoyant intermediary only market and would not work so well in a mortgage landscape still crippled by dual-pricing.

The FSA will inevitably not please everybody when it announces the conclusions from its MMR in June, but at least those who have submitted their responses or raised their concerns can be happy knowing they put their argument forward.

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