The Mortgage Market Review has confirmed the regulation of secured loans will move from the Office of Fair Trading to the Financial Services Authority/ Financial Conduct Authority no earlier than 2014, once a decision has been reached on the transfer of consumer credit regulation as a whole.
While the OFT has followed the FSA’s lead by publishing its expectations on affordability assessments and arrears handling in the form of its irresponsible lending guidance in 2010, it fell short of the forbearance measures and guidance introduced by the requirements.
To date the OFT has not taken any secured lenders to task for failing to assess affordability, or for dubious arrears handling practices.
This does not mean practices witnessed in the mortgage arena have not been replicated in the second charge market.
Secured lenders have equally suffered the same fallout caused by the irresponsible lending practices of the mid-2000s, during which time secured lenders’ criteria mimicked, and was on occasion more relaxed, than that required of first charge lenders.
So you saw high LTVs, self-cert, large income multiples and bad credit – and customers who were serial debt consolidators were rife within the industry.
With the benefit of hindsight, maybe the regulation of secured loans should have been transferred to the FSA back in October 2004.
With hindsight, maybe the regulation of secured loans should have been moved to the FSA in October 2004
Given their proximity in design and consequence for breaching the terms, it seems illogical that they should not be subjected to FSA scrutiny.
The question that will remain forever unanswered is this – had secured loans been regulated by the FSA would lenders have fallen foul of the issues that their FSA-regulated siblings did?
But secured lenders and brokers remaining in the industry will have watched the MMR unfold and hopefully they sat up and took note.
Some have already adapted their processes to incorporate the affordability and forbearance measures required by the FSA.
For those that remain and for those seeking to enter the industry, what better insight could they wish for than the transition of regulation since Mortgage Day?
The evolution of principle-based regulation, in particular Treating Customers Fairly, how to apply these principles and the willingness of the FSA to investigate and publicly censure those who fall short of their responsibilities, should provide a significant foundation on how to lend responsibly.
While the regulation is some way from being a dedicated discussion paper, you can guarantee the final rules will not be a million miles away from the Mortgage Conduct of Business rules.Whatever shape or form the future regulations may take, now is the time to be planning for them.