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.