BSA calls for flexible affordability assessments
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In its response to the Mortgage Market Review, The Building Societies Association says it wants the Financial Services Authority to take a flexible approach when it comes to assessing a customers flexible.
The BSA argues strongly for the FSA to focus its attention exclusively on those areas where there is strong evidence of failure and for it to consider the cumulative effect of regulatory changes on the whole of the market. Reactionary regulatory intervention will deliver little or no benefit to consumers.
Paul Broadhead, head of mortgage policy at the BSA, says: “Though showing some small signs of recovery, the UK mortgage market remains fragile. It is crucial that the Government and regulators take stock of the current suite of regulatory interventions and consider the aggregate impact of these reforms before bringing in more new requirements.
“In our response to the mortgage market review proposals we call for flexibility when assessing a borrower’s income and affordability If the FSA chooses to take a very prescriptive approach, this could mean many existing borrowers, who are already successfully repaying their mortgages, will find it difficult to remortgage in the future (or in some instances get a new mortgage at all) while many future borrowers will be deprived of the opportunity to take out a mortgage.
“While we support the introduction of an approved persons regime for advisors, the impact on lenders could be disproportionate. As the proposals currently stand, we fear that the regime will extend beyond those staff involved in the advice process. If implemented on this basis, it would have significant cost implications for little benefit.
“As the mortgage market rebuilds for the future, all lenders should be able to compete under the same rules. It is vital that, in order to encourage competition and consumer choice, the FSA ensure there are consistent and equitable prudential rules that do not discriminate against building societies.”
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Readers' comments (4)
Derek Frost | 28 Jan 2010 2:20 pm
He says "the impact on lenders could be disproportionate"!!!!!!
Why is bringing mortgage advise in to an 'approved person' any different to 'individual registration' for financial advisors under the PIA back in the 90s? Why SHOULD lenders be allowed a lower level of advice accountability?
Oh yes, silly me, look at the limp reasons they gave for 'dual-pricing' against intermediaries!
A level playing field on advice accountability is the only way the regulator can ensure TCF actually means that!
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Sandra Smith | 28 Jan 2010 2:41 pm
Derek, I think you have missed the point here. If you read the detail, the proposals could mean that underwriters and processing staff have to be approved persons, that is definitely disporportionate! The BSA response actually agrees that lender advisors should be caught the the regime, just not back office staff.
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Graham Griffin | 28 Jan 2010 2:56 pm
I would have to question the need for lenders to employ underwriters if everything is going to be prescriptive. I see no reason why an individual case can not be considered on its merits and with justification normal lending criteria can be extended. This would respect those people who have maintained existing mortgages and assist them to either remortgage or move. Equally and rightly those living beyond their means would continue to find it hard to refinance.
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chris powell | 29 Jan 2010 10:11 am
Ohh Dear Graham I question your rationale. The fact is that there is a desperate need for lenders to employ skilled underwriters and not machine minders. For some unknown reason the use of machine-based decision making has been ignored by every party to these debates. Many lenders (thankfully no longer with us) used a machine to make their decision and the underwriter had absolutely no say in the matter at all. If the Senior Executives wanted more business they simply tweaked the system to deliver more acceptances. The underwriter had no choice because a machine said 'yes'. I have personal experience of this and have seen so much 'c**p' agreed by a machine despite the protests of the underwriter. The ‘old garbage in garbage out’ mantra was forgotten in the pursuit of volume, volume, volume and we are now paying the price.
I have regularly read the defence of credit scoring and AVM’s, often by the former GMAC CEO, and the only real defence is that it produces quick decision making. Let us remember that Edeus was full of praise for machine based decisions, Northern Rock, Bristol & West, GMAC, SPML, Preferred etc etc all used an automated decision making process and what happened to them? Personally I would prefer sound decision making. And please bear in mind that the fact that someone has happily maintained a £100,000 mortgage for the last two years in a benign interest rate environment does not mean that they can readily afford £200,000 going forward. I would also love a debate as to how many ‘good’ borrowers have only been able to afford their mortgages and lifestyle based upon credit card use.
Finally it needs to be borne in mind that scoring is designed as a generalisation. It can’t look at people as individuals but has to treat them all the same and, by its very nature, cannot be flexible. The fact is that by using a proper experienced and skilled underwriter you would get the market you want – a flexible view and each case treated on its merits. By the way, I work for a small Society without scoring and brokers like us because we make individual decisions and treat people as individuals.
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