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MMR will make Grant Shapps’ job impossible, says CML

Michael Coogan, director general of the Council of Mortgage Lenders, has urged the regulator to reconsult on its responsible lending rules or risk making it impossible for housing minister Grant Shapps to do his job.

Speaking at a seminar on the MMR’s responsible lending proposals today, Coogan says the regulator has not listened to the industry’s concerns and he urges those in the sector to write to relevant ministers and local MPs to fight the MMR.

Coogan says the FSA has not addressed the question of where people will live if consumers are prevented from becoming home owners.

He says: “Of course, it is not the regulator’s job to implement housing policy, but its proposed approach on responsible lending will make Grant Shapps’ job impossible to deliver.”

Coogan wants the FSA to make an early announcement before the consultation deadline of November 16 that it will reconsult on a new draft of responsible lending rules, with a full and complete impact analysis.

He says: “From the start, we have made three basic contentions, which have not been accepted by the FSA.”

Firstly he says the paper introduces a change in responsibilities for mortgage decisions from borrowers to their lenders, creating new regulatory risks which the industry would not accept.

Secondly, the CML has highlighted inadequate drafting of rules, both in the area of arrears charges and responsible lending, which will lead to different interpretations by firms and the risk of future regulatory intervention as the FSA’s successor body asserts the industry, or particular lenders, have not done what it intended under its current policy proposals.

Thirdly, it says the regulatory approach is so risk averse that it layers rule upon rule addressing the same affordability risk, creating in total an over reaction to past problems – the regulatory pendulum has swung too far.

The CML believes the FSA’s proposals do not take due account of the self-correction in the market since 2007.

The trade body says the MMR is a banner for how the FSA’s successors, presumably the same staff with a new employer will regulate financial services as a whole.

But in response to the CML’s comments, the FSA says the MMR aims to address the major failures that have occurred in the mortgage market and to replace risky lending and unaffordable borrowing with common sense standards.

A spokeswoman for the FSA, says: “While many people are currently benefiting from historically low interest rates, market contraction has already impacted over 2 million borrowers and our evidence has found that almost half of UK households have had little or no money left after their mortgage and other bills were deducted from their income.  

“There are currently 350,000 borrowers in arrears and 54,000 homes were repossessed last year. Even a modest rise in interest rates could lead to a significant increase in the number of families suffering financial distress. This is why it is imperative that we ensure lenders act responsibly and do not return to irresponsible practices, in order to protect consumers from taking on mortgages they cannot afford and potentially losing their homes.

“We think that much of what we are proposing is consistent with how lenders themselves have already tightened up their procedures following the recent downturn. No doubt this is why our proposals have been characterised by a number of firms as simply marking a return to ‘sensible underwriting’ and common sense.”

It says it continues to welcome and review all feedback it receives and it has already indicated that it will not rush into change without fully assessing the impact of its proposals on the mortgage market.

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  • Dave 10th November 2010 at 11:37 am

    It should be remembered that there are always two sides to each position and that while lending practises over the past 15 years became too loose this did provide prosperity to many in the UK. During this period there were very few of you sitting in properties which had increasing in value every year complaining lending was too easy.
    The primary problem was when it became apparent that some banks became too large and important to fail Northern Rock, HBOS, RBS and their problems became our problems. The reason they failed was not the way that they lent monies so much but the way in which they borrowed money. It should also be remembered that RBS did not get involved in Self cert mortgages, adverse, or interest only mortgages but would have collapsed without taxpayer intervention.
    If the FSA proposals become enforced which is happening already then many hard working people who have never in their life failed to make a loan repayment or had any credit problems will no longer be able to obtain a mortgage.
    If ever there was a better example of closing the gate after the event then this is it.
    I urge the government to carry out an immediate impact study into the FSA proposals as I believe these proposals will adversely affect the UK economy for many years to come.
    We could be in danger of tying both hands behind our back while trying to exit this recession.

  • angie 9th November 2010 at 1:49 pm

    The FSA is quite right to start proper regulation of mortgage lending since half of all mortgages in the recent boom were Liars Loans, ie Fraud!

    These beneficiaries or fraudsters are also benefitting from low interest rates whilst others like Savers are being punished.

    Only those with vested interest like the CML, Brokers, Estate Agents etc are crying about impending new rules because of their own financial gain, including the BTL brigade and speculators.

    The FSA, BOE and Banks should start looking at incomes with a fine toothcomb from now on.

  • sb 4th November 2010 at 2:14 pm

    The FSA always looks at the secured lenders. Why is it that unsecured lenders like credit card companies, personal loans and payday laons and go on like normal and they are the ones that put borrowers into a mess.
    But No, the FSA the target the guy that who is already beaten on the ground because they are simply an easy target. What a joke

  • NT 4th November 2010 at 12:41 pm

    The FSA are out of touch something we have seen many many times with them.
    They seem to think that the best way to avoid mortgage arrears and house repossesions is to prevent us from owning our own homes – well I suppose they are right! But where will we live? People will have to rely on the rental sector and with a difficult economy those people out of work will not be able to pay their rent in turn we would see rental arrears which in turn will affect landlords and their buy to let mortgages!
    It is the bad practices of the banks encouraged by the last government and missed by the FSA that has caused a faltering economy this has led us to where we are at the moment – get the economy right things will improve,but watch the banks, they are too powerful don’t socially engineer our society
    Life is not without risk

  • Luke Atkinson 4th November 2010 at 12:37 pm

    Why don’t the FSA just leave an already battered part of Financial Services industry alone.

    Why don’t they look at payday loans? 2500% APR?? ”This is why it is imperative that we ensure lenders act responsibly and do not return to irresponsible practices, in order to protect consumers” – socially acceptable hypocrisy!

  • Dave 4th November 2010 at 12:34 pm

    A cynic might think the FSA is suffering from sour grapes…

    If they are not going to be allowed to run the show any more, they’re going to screw it up before they go! Because the MMR is a disgraceful knee-jerk reaction to problems that aeither don’t exist, have been blown out of all proportion or have largely been resolved already.

  • Victor Meldrew 4th November 2010 at 12:29 pm

    What major problems in the UK mortgage market.

    The major problems were those caused by banks investing in the US mortgage market without proper due diligence.

    Any problems in the UK market, including self cert, could have been avoided with the proper application by the FSA of the rules they had available.

    Yet again the FSA show a total lack of understanding of the mortgage market and its impact on the country’s economy. If MMR is allowed to continue in it’s current form it will result in a prolonged recession and a much reduced recovery.

  • Maurice Edgington 4th November 2010 at 12:17 pm

    Yes I agree with the views of the CML.
    I see that the FSA has quoted total arrears borrowers but there is no indication at all as to how they came to be in arrears. Over the past 3 years people have lost jobs, taken on lower paid jobs, couples on joint mortgages have split up, couples have had increased family sizes and as important reached the limits on their credit card and personal loans, which were offered by lenders on far less responsible basis. Not just 350,000 people who were lent money in an unresponsible fashion.
    The question of affordability can go too far unless there is an industry wide agreement as to how to calculate people’s spending habits. We could end up with mortgages only being offered to people who spend nothing and have large deposits and disposable incomes. This is not the British way.

  • Danny Lovey 4th November 2010 at 12:07 pm

    Inasmuch as making the job impossible for Grant Shapps, Michael has a good point. Right now future housing policy is more of a ‘political issue’ as in the macro, rather than a regulation one as in the micro. Inappropiate draconian regulation in a market that has self corrected is short sighted, but the FSA will blindly plod on with their agenda unless there is political intervention.
    Keep lobbying MP’s and submit your views to the FSA on the MMR by 16th November is the message

  • Bill Warren 4th November 2010 at 11:58 am

    Well said Michael Coogan and CML so very true,this remains a major threat to all parties to the mortgage industry and the government need to really get a grip before the FSA cause more social grief.

  • Tony Joannou 4th November 2010 at 11:57 am

    Get used to it CML, we’ve had to put up with it for years in the IFA sector.