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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!

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  • Andy Valvona 1st December 2010 at 5:33 pm

    Jonathan Miller has hit the nail on the head. The problem is, many consumers, once their finances have been sorted out, have realised that they have increased spending power once more, and are tempted by credit card offers, and retail finance offers. I’m afraid this is human nature.

    The Mortgage Adviser has probably done his job properly – what Sue Edwards fails miserably to understand is that in many instances, the client has been helped out of an uncomfortable position by the provision of mortgage finance.

    She also fails to explain what the alternatives were at the time the mortgage was written – the clients were probably desperate – the alternative to the mortgage finance was an unpalatable one for the client – i.e. “Sell your house, Mr and Mrs Client”

  • Jonathan Miller 30th November 2010 at 6:18 pm

    I understand what you are saying Pete, but for how long are we meant to hold their hands?

    You rearrange their finances to make things more affordable, tell them not to borrow, warn them of the dangers and go back 12 months later to find another £5-10k on a credit card etc!! You have done your job properly but until there is a way of closing down lines of credit once consolidated, then this will be an ongoing problem.

  • Pete 30th November 2010 at 5:11 pm

    Talk about a blame culture. Ray Boulger, Anonymous 3.00 and Jonathan Miller all put blame on the borrower for the problem. I thought that we Mortgage Brokers were here to advise clients and to consider affordability. That appears to not be the case and we have these delinquent clients who borrow much more than they can afford and we cannot do anything to stop them.

    Come on fellow brokers. We cannot have it both ways. If we want to be considered to be professional advisers we cannot step back when things go wrong and say – “It’s the client’s fault. They were borrowing far too much and we could not stop them.”

  • Jonathan Miller 30th November 2010 at 4:32 pm

    I think both these organisations need to also step back and see where the main root of the problem started. In my experience, this would be the borrower.

    Many a time a new mortgage/second charge has been arranged to clear up a clients ever increasing unsecured debts and reduce their outgoings, only for the client to continue using the same credit cards/store cards.

    Sometimes by the time it reaches the advice organisations, the breakdown of debt looks damning on lenders, but hides the true story.

    IMO, better communication is required between lenders that once someone has consolidated credit which they were struggling to pay, then they should be limited to what can be borrowed in the future to make sure they can live within their means

  • Will Smith 30th November 2010 at 3:00 pm

    Sue Edwards wrote her email from the perspective of an advice bureau.Fair enough,everyones entitled to their say.
    I’m wondering whether Anon@1.49 was from shelter?the other company supporting the MMR.
    I hear irresponcible lending criteria bandied about,not so much about irresponcible borrowing not so much,wonder why?
    Maybe the CAB thinks all lenders and brokers are evil mortgage pushers,akin to heroine dealers,pushing their wares?
    In reality,I don’t know a single broker who would complete a mortgage which would jepodise his P.I Cover,or his FSA licence.We are regulated,and would lose our livilhoods doing so,drug dealers arn’t.

  • Anon 30th November 2010 at 1:49 pm

    Well said Sue-could not agree more.

    The market has indeed self-regulated but only once the issue had got out of hand. Whilst lenders are currently fairly sensible in their approach to underwriting and risk, all too soon this position could erode as the pressure to increase volume and market share to satisfy shareprice requirements and over-zealous investors hits once more. Always remember they call these things a market cycle for a reason.

  • Anon 30th November 2010 at 1:49 pm

    Well said Sue-could not agree more.

    The market has indeed self-regulated but only once the issue had got out of hand. Whilst lenders are currently fairly sensible in their approach to underwriting and risk, all too soon this position could erode as the pressure to increase volume and market share to satisfy shareprice requirements and over-zealous investors hits once more. Always remember they call these things a market cycle for a reason.

  • Sue Edwards Citizens Advice 24th November 2010 at 3:54 pm

    Ray Boulger asks whether we are in a time warp. On the contrary, with over 3,000 CAB outlets across the country recording over 7million problems each year, we are in a unique position to monitor and record the real issues people are experiencing right now. And while Ray is right that many sub prime lenders have now left the market, bureaux continue to see people having problems as a result of these firms’ lending practices and will do for some time to come.

    And while we have no doubt that mainstream lenders have improved their lending practices, it is vital that this is maintained. Experience tells us, from both the late eighties and 2000 – 2007, that if there is another property boom this sort of lending practice will simply raise its ugly head again unless effective regulation is put in place. During both these periods bureaux reported problems with lending and arrears management practices in the broader credit market.

    It is clear that the previous responsible lending rules did not work. The FSA left it up to firms to be responsible and some firms were reckless. It is clear then that more robust and observable responsible lending requirements are needed. Responsible lending encourages responsible borrowing behaviour.

    Of course, the mortgage industry is fully entitled to argue with the FSA on the form of the rules to ensure that these are proportionate etc. But arguing that firms should be left alone because the market has ‘self corrected’ is, as history has shown us, highly problematic.