Shelter and CAB are in a time warp

Today’s joint press release from Shelter and the Citizens Advice Bureau entitled Reckless lending must be stamped out now,” refers to their joint letter to housing minister Grant Shapps, in response to the Financial Services Authority’s Responsible Lending consultation paper, makes me wonder whether the authors are in a time warp.

The press release quotes three case studies which, on the face of the facts as stated, do appear to be examples of irresponsible lending, although interestingly it doesn’t question whether it was also irresponsible borrowing.

But these cases were all mortgages which completed in the period 2006 to 2008 – in other words prior to the much tighter lending criteria currently introduced by lenders.

Furthermore many lenders active during that period, particularly those in the sub-prime market, have since ceased lending.

If reckless lending still needed to be stamped out one might have expected the combined resources Shelter and CAB to be able to produce at least one example of a mortgage which completed this year.

These two charities seemed to have fallen into the same trap as the FSA in not recognising how much the market has changed over the last two to three years.

But at least there have been signs over the last two weeks that the FSA now recognises it has been rather over exuberant.

It is of course always possible to find examples of bad practice in any industry but the fact that only 2.15% of mortgages are currently three months or more in arrears suggests that the problem is nothing like as great as Shelter and the CAB suggest. Most businesses would be absolutely delighted if 98% of their customers paid on time!

Shelter and CAB claim that “soft-touch regulation of the past …. devastated the housing market”. 

If they really think our housing market has been “devastated” I wonder what word they would use to describe the Irish or US housing markets?

It is particularly interesting to compare what Shelter and CAB consider is an appropriate response to the MMR with the response from a consumer body which has actually taken the trouble to investigate the implications of the MMR Responsible Lending paper.

I refer to the highly respected Financial Services Consumer Panel, which ended its response to the FSA’s consultation paper with the following paragraph: “On the other substantive proposals the FSA should take more time to conduct the full economic analysis necessary to assess their impact; ensure the appropriate balance with potential macro-prudential interventions; and consider more fully what would constitute the most appropriate transitional arrangements. Once the FSA has taken the time to do this it will be able to re-consult on a more informed basis.”

While expressed in reasonably diplomatic language, that is a pretty damming indictment of the FSA!