Clumsy regulation will increase risk of a second downturn
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It was interesting to read the letter from Savills Lending Solutions’ managing director Rob Jupp in last week’s Mortgage Strategy.
I completely agree with the points Jupp makes. But I agree far less with the sentiments expressed in the letter from the anonymous self-proclaimed ’fraud expert’.
This writer basically made statements about the bleeding obvious, and clearly still believes it’s only possible to conduct anti-money laundering checks face-to-face.
At the moment the general idea seems to be to regulate self-cert mortgages out of existence regardless of the fact that, at a conservative estimate, there are more than a million borrowers with self-cert deals who have never missed a payment.
They are probably wondering what is going to happen to them when their deals end.
With this approach the Financial Services Authority seems to be saying that self-cert was a primary cause of the credit crunch and therefore we should expunge it from history.
This is patent nonsense and displays a lack of knowledge about - and understanding of - the present economic situation.
In fact, this is regulation to protect a small number of potential rogues from themselves while the majority have to suffer too.
Similarly, the market is crying out for credit repair products - I daren’t even mention the phrase sub-prime - for those who have missed payments or fallen into arrears in the worst recession in living memory, perhaps through no fault of their own.
These people may already be back on their feet but now have less than spotless credit records. What chance do they have when it comes to securing mortgage finance?
And what if they have equity in their homes that they would like to access to help, say, fund a business? They have little hope because regulation will deem them too risky to lend to.
This is a serious dilemma because the intention seems to be to regulate risk out of the mortgage market completely.
In the new world, it seems institutions will not be allowed to take lending decisions on their own because they cannot be trusted.
Instead, everyone must opt for ’vanilla’ deals because that’s the only ’flavour’ allowed.
But practices such as this make a double-dip recession more likely - those who want to innovate and help grow the economy will not have a chance to because the risk involved in helping them will be deemed too great.
As we come out of recession, entrepreneurs will look at the economic climate and many will seek out opportunities that arise out of adversity.
This band would like to start businesses, and generate jobs and taxes, to help haul the country out of the mess it’s in.
Yet the regulator won’t allow these potentially prime self-cert borrowers to access mortgage finance on that basis. It’s ludicrous and self-defeating
As Jupp concludes, we all await sector that keeps this country going.
Because of the actions of big banks and other financial institutions that the FSA has failed to supervise properly we are now doing a fraction of the business we used to.
We pose little risk to anyone so our regulatory fees should come down. But if we do two mortgages a month in this climate and get, say,
£300 in commission the FSA wants a third of it. By the time we pay our other costs it’s just not worth the effort. Lose brokers and consumers
will really suffer.
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