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The Conservative Party fails to apply the sense check

It was clear from the Mortgage Market Review that the Financial Services Authority had a very limited understanding of the value of a self-cert mortgage for many, primarily self-employed, people.

Before finalising any new policy, even though the actual term self-cert appears to be irretrievable tarnished, the FSA will no doubt reflect on comments made during its roadshows and in the consultation process.

Just because there was some abuse of the product doesn’t mean the product itself is fatally flawed.

A more appropriate solution would have been to clamp down on the abuse, especially where it was fraudulent, but in the good times the FSA failed dismally to adequately discharge this part of its regulatory responsibility and consequently feels the need to overact.

A significant part of the blame for this regulatory failure has to lie with the current Prime Minister Gordon Brown.

Despite blaming everyone but himself for our economic problems, “which started in America,” as chancellor he dictated the light touch policy to be followed by the FSA.

Of course, most of us in the industry were happy with a light touch policy but perhaps not that it should have been quite as light as it was.

Many mortgage practitioners were well aware of some of the companies whose business plans basically only worked if they adopted some dubious practices and there is no reason why the FSA couldn’t have been much more proactive in identifying which companies should be targeted for more active monitoring with a view to educating if possible but disciplining if necessary.

On the only occasion I reported a blatant breach of the rules to the FSA no action was taken over the next month and so I wrote about it and then very rapidly the company took action itself, possibly without the FSA ever getting involved.

So even when given information on a plate the FSA proved itself unable or unwilling to act promptly.

A key test any half competent broker or lender would always apply to a self -cert application was a sense check.

For example is it reasonable for someone who describes their occupation as a cleaner to be earning £80,000 per annum?

Maybe, but only if that person owns the company rather than does the actual cleaning.

Yesterday we had another example of politicians making fools of themselves by failing to apply the sense check.

This time it was in a document from the Conservative Party detailing the gap between the Britain’s richest and poorest areas.

Conservative Central Office released information claiming that more than half of girls – 54% – in the most deprived communities fell pregnant before their 18th birthday.

This claim was not only untrue but also breathtakingly ignorant. A crucial decimal point was missing – the real figure is 5.4%.

Now if you had asked me before yesterday what the correct figure was I would not have known but my common sense would have told me that 54% looked highly suspect.

Had a sense check been applied to the document by a competent person before it was released the document would have been corrected before it was published.

So, surprise, surprise, politicians can make mistakes as well as mortgage brokers and lenders, but of course they don’t have a regulatory body costing an arm and a leg looking over their shoulder and so won’t actually be disciplined. Politicians’ motto appears to be “do as I say, not as I do.”

Fortunately there is a sanction against crass mistakes by politicians.

It is called The Media and with the mass ranks of the blogosphere and/or newspaper web sites now often picking up politicians’ cock-ups within minutes at least politicians are subject to as much, if not more, scrutiny than their subjects.

Politicians may not be fined when they make crass mistakes but they stand to lose something more valuable – their reputation.

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  • Paul Goldsmith 19th February 2010 at 4:52 pm

    It is not about lenders believing what the broker says, it is about what is plausible and sensible. If self cert is scrapped then the housing market will remain stagnant at best for as long as it takes for all people who are on self cert mortgages at the moment to be able to prove their incomes to the satisfaction of the FSA. In the meantime anybody on a self cert mortgage is being unfairly punished by the very body who constantly ram the TCF point down the throat of anybody who will listen. The statistics prove that the vast majority of self certs were not abused when the potential to do so was available, so the future of self cert is to learn from the past and ensure that the performing self cert becomes the standard.

  • Anonymous2 19th February 2010 at 3:42 pm

    According to certain logic being spouted , there should be no self employed self cert loans in arrears at the present time. All they have to do is work harder to earn more.Don’t quite think that’s the case though is it.
    And also lenders should accept the word of a broker and lend whatever is asked for, because all self employed have the ability to earn whatever they want.
    Been a mad few years, but wasn’t aware the asylum doors had been left open quite yet.

  • Justin Fordham 18th February 2010 at 11:29 am

    Self Cert is a good product; however it does have its flaws and is open to serious abuse. Not having self cert on the other hand is a bit drastic, and closes the door to many entrepreneurs and self employed people. Instead of everyone pointing fingers at each other, why don’t we learn from the past and find a well thought out compromise between no self cert and having self cert? Surely this would be more appropriate and beneficial to the whole industry.

    I agree that Lenders should empower their underwriters to understand a case and its complexities if the income sources are not traditional. They should not just rely on a credit score and the black & white text from their lending manuals. That way liar loans need not exist. All declared income is provable regardless of its source, however lenders need to understand and accept that self employed income does vary and be more flexible to this!

    Most self employed people will work as to their means. If they were to take on a larger mortgage, the ability to earn more to pay the extra borrowing is there.
    How is it that employed applicants, can apply for a mortgage if they have only just started a new job? On the same note, if an employed person were given a pay rise, most lenders consider it immediately and would not wait for 3 years to allow it to be verified income.

    So why is it, that Self employed applicants are forced to prove extra earned income by way of 3 years accounts prior to being allowed to take borrowing or extra borrowing?

    New thinking and clear guidelines are required to allow self-cert (or a new re-branded version of “self employed only self cert”) back into the market place. What the guidelines are is open for debate, but quite rightly some common sense would be a great starting point. The quicker the market allows these many thousands of borrowers a fair option, the better for us all.

    I’m more than happy for any lender to contact me to discuss possible alternatives to the old traditional self cert, and I’m sure there are 100’s of other brokers who would be happy to do the same. Let’s work together to help each other to get the markets going again!!

  • Anonymous 17th February 2010 at 8:22 pm

    There really is no need for a Self Cert product. What is required is a sustained effort from Lenders to educate their underwriters to be able to asses a case on its merits (just like the good old days). Ray you keep harping on about the regulator and quite frankly, its getting boring. The reason self cert and fast track exists is as a tool for lenders to be able to distribute their product at a faster pace using the intermediary as a conduit. Now that business levels have dropped away, Lenders should empower their underwriters to understand a case and it’s complexities if the income sources are not traditional. That way liar loans need not exist. All declared income is provable regardless of it’s source. Regulate the underwriters so that they have to attain professional examinations, this will stop the box ticking mentality.

  • Paul Goldsmith 17th February 2010 at 2:14 pm

    Well said Ray. There is a place in the mortgage market for a monitored and controlled self-cert. Agreed this product has been abused in the past but why can’t we learn the lessons from it? Self employed people will work to their means with many choosing to have a day off here and there as they have no immediate need for extra earnings. If they were to take on a larger mortgage the ability to earn more to pay the extra borrowing is there. It cannot be right that they would be forced to prove the extra earned income by way of 3 years accounts prior to being allowed to take extra borrowing. If an employed person was given a pay rise then the lender would not wait for 3 years to allow it to be verified income.
    Clear guidelines are required to allow self-cert back into the market place. What these guidelines are is open for debate but some common sense would be a great starting point, and the quicker the market allows these many thousands of borrowers a fair option the better for us all.