I am delighted to see in its latest Mortgage Market Review paper that the Financial Services Authority has moved on from its utopian ideas and woolly rhetoric, so common in its publications, to produce a set of practical and well thought out proposals.
I am particularly pleased that at last it has stood up to the banks and made all interactive sales advised.
This means there will be no arguments as to whether a sale was advised or not, and less likelihood of consumer detriment through any inappropriate sales.
I am also optimistic that, contrary to some suggestions, this outcome will lead to a larger business share for brokers.
This is because I think it will be more difficult and less profitable for banks to operate the new system, and the intermediary route may offer a more cost-effective means of distribution.
I also applaud the sensible proposed rules on interest-only mortgages.
It will be possible to assess quantitively whether a consumer is able to support an interest-only mortgage and will hopefully lead to lenders abolishing silly criteria requiring the borrower to hold a minimum equity stake of £150,000.
It appears at last that the FSA has engaged with and listened to the views of stakeholders, for which it should be praised.
RS Mortgage Consultancy
High street lenders’ service is too poor to threaten brokers
I was interested to read Mortgage Strategy’s story about how the MMR rules could incentivise lenders and borrowers to go direct, as predicted by the FSA.
In response, there were a number of comments on Mortgage Strategy Online from people who were concerned about how it will impact brokers.
I don’t think independent mortgage brokers have anything to fear. We all deal with lenders on a daily basis and witness at first hand how inept their staff really are.
We are expected to know the underwriting criteria for scores of lenders and the banks normally can’t even quote their own criteria, which often results in me having to be referred to a senior underwriter.
I don’t think my clients will go direct as they value the service I offer from start to finish, which includes property advice and independent insurance advice, which the banks don’t provide. As 90% of my business is from client referrals, I don’t expect this to change. Look after your clients and they will look after you.
Regulator and banks will together wipe out intermediaries
In response to some of the comments on the FSA’s prediction that the MMR could lead to lenders increasingly going direct, those of you who think the cost to the banks is too high to give advice through their branches should think again. If they stopped paying proc fees that would level out the cost.
I imagine you will see a large shift towards business conducted purely online to negate the need for advice to be given – comparison sites will offer a complete business to consumer application process, as some are already doing.
The most, and probably only, positive point is that the FSA has outlawed non-advice in the mortgage industry.
Having worked for one of these firms, the mentality is to get as much out of a consumer as possible with extortionate arrangement fees and bolt-ons through legals and so on – there is no focus on getting the consumer the best deal.
But sad as it is, it’s clear to see again that the regulator is in bed with the banks, that the underlying aim is to wipe out the hard working and professional intermediary and that this will probably come to fruition.
Comparison websites cannot compete with service from brokers
Some of the comments on Mortgage Strategy Online regarding the story that the new MMR rules could lead to more lenders going direct implied that as a result we would see more lenders using the internet to distribute mortgages.
But an hour on the internet will not enable anybody to select the right mortgage because comparison sites:
1) Do not properly compare. They fail to consider necessary things like the ’reversion rate’.
2) Can only capture lenders’ basic criteria and often cannot cope with product and rate specific criteria.
3) Often cannot deal with lenders’ basic criteria – such sites have to fit square pegs into round holes.
4) Cannot tell you how long the lender will take to process the application, which may be a consideration in choice of lender.
There may be merit in researching the market before talking to a broker but it is not a replacement for the knowledge, and chasing of lenders, that a good broker can bring to the table.
I tend to think that if all mortgages must be advice based, it will increase the amount of business written by brokers – the alternative will be a wait of several weeks before an appointment with a bank adviser will be available.
Name and address supplied
Misleading data fills Shelter’s same old homelessness story
Shelter has revealed that almost one million people have taken out a payday loan to help pay their rent or mortgage in the last 12 months.
A YouGov survey for the housing and homelessness charity also reveals that 15% of respondents – equating to almost seven million people – are relying on some form of credit to meet their housing costs, such as payday loans, unauthorised overdrafts, other loans and credit cards.
Shelter has warned that the new year could bring a risk of homelessness for those already struggling to pay their rent or mortgage.
But this is the same old story from Shelter at this time of year – last year it was about how many people were making their mortgage payments by credit card. They conduct a very small survey and extrapolate the findings across the whole of the nation to create sensationalist hype.
The survey would have only been conducted among a couple of hundred people, so extrapolation will have given a false reading.
Given that there are 15 million mortgage accounts in the UK, if 15% are reliant on payday loans etc, would the Council of Mortgage Lenders only be predicting 45,000 repossessions this year?
Also, how many of the people taking these loans are doing so to alleviate a short term issue for their finances – particularly given the time of year?
Most of these people would have received some kind of advice at the time they applied for their mortgage but we cannot always mitigate for life’s events.
No Hair Mortgage Underwriter
Time we challenged the unwieldy power of rating agencies
In a blog on Mortgage Strategy Online just before Christmas, Samuel Dale argued that if rating agencies want to play politics then they are in need of reform.
He argued that: “Despite heavy criticism and widely perceived failures during the financial crash, credit rating agencies still have heavy political clout.
“Just yesterday, there was an example of the pessimism they can instil when Co-operative Bank was put on negative watch for buying more branches and the entire banking system was under review for banking reform.
“These agencies suffer from a paralysing conservatism at a time when overhaul of the political, economic and financial system is desperately needed.”
This was a pertinent comment, the more so because it reminds us that if you give any institution power, it will eventually use it for its own ends.
Yet this factor is consistently ignored.
A rating agency should not be a player in the market, yet they were a major factor in the financial crisis because so much faith was blindly placed in them.
But go to the research papers and they say, almost with one voice, that experts are no more prescient than the thrown dice.
Information provided by credit rating agencies is undoubtedly useful but should not be critical in making a decision. Rather, it should be part of a total assessment from a range of information sources.
That it has become central tells us much about the laziness of those who use these agencies.
They play with billions of other people’s money with, it seems, the sole object of making a turn for themselves, rather than for their clients.
In the event of a problem it is the client that suffers, rather than the manager.
So while it is useful to consider the status of rating agencies and their power, it may be more useful to ask why they have this power.
If it is through the lazy use of credit rating research by institutions that should be more professional, then we should also look at those institutions.
It is disgraceful that any rating agency should give a triple-A rating to junk bonds – and as pernicious that institutions cower behind the protection of that rating when the market is aware of the problems.
Regulators have a dual problem; they haven’t a clue what is going on until the horse is six miles down the road, and they do not take on the major institutions.
So they prefer to fiddle with the likes of the Retail Distribution Review while the world burns.
Businesses need the courage to assess risk independently
I have wondered for the past three years why rating agencies are taken so seriously.
It seems to me they are hanging on to their existence and politicians, businesses and the like – who are afraid to assess risk for themselves – just go with what the agencies tell them, followed by various levels of panic.
Ratings agencies are about number four in my top 10 types of companies we wouldn’t miss when they were gone.