MMR: Fast-track lives - but brokers must pass on verified income to lenders
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Fast-track has not been banned by the Financial Services Authority in its latest Mortgage Market Review consultation paper - but under the new proposals brokers will be required to pass on evidence of a borrower’s income to lenders.
One of the most controversial parts of the MMR has been the FSA’s proposed ban of self-cert and fast-track - something which the FSA had admitted in the latest paper took it by surprise.
It’s original justification for banning self-cert and fast-track was that at the height of the market in 2006/2007 half of the £581bn in mortgages originated was without making any checks on the borrower’s ability to repay.
While most in the industry conceded that the game was up when it came to self-cert, the proposed ban on fast-track prompted a vocal fight back from lenders and trade bodies.
Their main argument was that fast-track had its place and backed up this claim with arrears data showing that borrowers were as good if not better from a performance perspective.
But in its latest MMR consultation paper the FSA has rebutted the claim that fast-track cases perform better.
Recent analysis shows that when the lower risk of fast-tracked mortgages is controlled for, there is little difference in the performance of fast-tracked and income-verified mortgages.
It says: “Just under a third of the lenders on whom the FSA has data have fast-tracked mortgages that performed worse than income-verified mortgages.”
The regulator has also rejected calls by lenders to instead restrict fast-track to borrowers with a good existing payment history, a high credit score, or low LTV, or ban specific fast-tracked products or the marketing of fast-tracked mortgages.
Despite this, it does see the benefit in a fast-track process - but it’s proposed that intermediaries be required to provide evidence of income to lenders. It claims currently brokers only do it if specifically requested by lenders.
It says: “As there are already systems in place to pass the evidence to the lender for their non fast-tracked business, which currently accounts for over 70% of mortgages granted, it does not appear to be overly onerous to propose that this happens for all applications, given the benefits that would be achieved.”
In terms of the types of documents that can be used it states that:
* Applicants will be able to pass on pay slips or bank statements via brokers to the lender but applicants will not be able to self-certify their income in any way.
* Lenders will be allowed to use evidence they already have on the consumer such as current accounts and can also accept similar information obtained from third parties, including from electronic sources.
* The FSA says it will also not be continuing with its proposal for human intervention in the assessment of income.
The regulator adds that if the UK fails to tighten up rules on income verification confidence in the UK mortgage market may suffer.
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