Under Mortgage Market Review rules at least a third of sub-prime borrowers would still be mortgage prisoners, despite a clause designed to help those trapped in their properties or loans.
The final consultation paper of the MMR says lenders will be allowed to waive affordability rules to rescue those unable to remortgage or move house because of tighter lending criteria, but to qualify borrowers must have had no arrears in the last 12 months.
And despite the MMR listing self-cert and interest-only borrowers as examples of those who could benefit from the concession, Moody’s claimed in its Credit Insight report last week that a large number of such borrowers would have too poor a credit history to qualify for it.
The ratings agency says that about 30% of borrowers in non-conforming residential mortgage-backed securities are in arrears, equating to around 150,000 borrowers, based on Standard & Poor’s estimate that there are about 500,000 outstanding loans in the non-conforming market.
Moody’s adds that the proportion that have been in arrears at some point in the last 12 months could be significantly higher.
It therefore argues that the MMR will have a negative impact on the performance of non-conforming RMBS in the medium to long term, as the rules will prevent borrowers from refinancing once their deal comes to an end or interest rates rise.
RMBS transactions with a high proportion of self-cert and interest-only borrowers will be worst affected by the rules.
Moody’s highlights GMAC-RFC’s RMAC transaction as one that would fare particularly badly, as 64.6% of its loans are self-cert and 69% are interest-only, and Southern Pacific Mortgages’ Southern Pacific Securities, with 64.3% self-cert and 48.7% interest-only, is also singled out.
A spokesman for the Financial Services Authority says: “Our proposals are designed to ensure borrowers only get a mortgage they can afford. But as a result of irresponsible lending practices in the past, no matter what steps we take there will inevitably be some borrowers who find it difficult to get a mortgage in the future.”