Recently I attended a Mortgage Market Review roadshow by the FSA that was most illuminating.
The presentation was attended by a mix of brokers and lenders but the longer the meeting went on, the more apparent it became that the regulator is not seeing its proposals in as sharp a focus as it initially intended.
By the end of the presentation I was less clear about what the FSA wants.
Some of the main points brought up were:
- There was much ado about the increase in the supply of credit from the early 2000s onwards and how it did not result in increased home ownership.
- The issue of affordability, how to assess it and how many people took out mortgages they could not afford was discussed, and arrears rates were mentioned.
- In terms of distribution, there was talk of how non-advised sales should be retained to allow for choice, even though most consumers thought they were indeed receiving advice, and how there were more arrears on advised sales as opposed to non-advised.
Let’s look at some of these points more closely. The boom in supply of credit had many causes but the mortgage market did not cause this it expanded because of it.
Trying to control macroeconomic factors using mortgage lending to constrain demand is all a bit suspect to my mind. And the FSA didn’t see any of it coming down the track.
On the subject of affordability, I believe most mortgages did not start out being unaffordable but became so once the storm hit.
What is it that we want to do here? Reduce arrears? If so, how high do we set the bar for a once in a lifetime event?
By its own admission the FSA does not have much data prior to regulation, so the historical perspective is missing, which is vital.
If clients are smart enough to choose the non-advised sale option, they should be smart enough to know the difference.
It’s hard to believe then that the same consumer would go to a lender and choose to opt out of most of the protection they would get on an advised basis.
It’s more likely they are simply not given any guidance one way or another. The default should always be advised with an opt-out if they sign a disclaimer which tells them what they are losing.
It seems clear to me that most self-cert and sub-prime business would have gone through brokers at the time. These have suffered most in terms of arrears.
So is it any surprise that overall the advised route seems to have more arrears?
I think we do need the MMR, but I think it needs to be more fundamental in its remit.
It is clear we are well into the law of diminishing returns in terms of these types of rules or principle-based regulation. The regulators are now part of the problem.
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