Caution will be forgotten once market recovers, warns FSA
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FSA managing director of retail markets Jon Pain has warned that caution will be quickly forgotten when the market recovers.
Speaking at the Council of Mortgage Lenders’ mortgage industry conference today, Pain warned that the apparent market correction is somewhat of a “mirage”.
Pain went on to highlight some of the risky practices that could be repeated if market confidence returned too quickly without regulatory safeguards in place.
He said that during the peak of the market fast-tracked applications became the norm rather than the exception with intermediaries alert to which lenders would not seek income verification so that many treated fast-track as an alternative to self-cert.
He also pointed out that non-banks’ share of mortgage lending surged from 2 per cent in 1998 to 15-20 per cent in 2008 and said this is an area where the FSA is looking to introduce more regulations.
Pain higlighted the fact these lenders are not deposit takers and are not subject to the same capital requirements as banks and building societies.
He suggested the FSA might look to curtail individual business models of non-banks if they start to look risky in the same way as it is looking to do in the building society sector.
Pain said: “Some people will say that the market has already corrected itself.
“That is true to a certain extent, but it is also somewhat of a mirage. What we see now is certainly a more cautious lending market - there is indeed much more emphasis on evidence of affordability, higher deposits are required for the best products, and many of the specialist lenders have disappeared and with them the niche markets have all but dried up.
“But if we are honest, we know that once the economy picks up, when confidence and funding return and the housing market starts growing again, caution will be forgotten.”
Pain said that at the peak of the market lenders used fast-track as a means of processing less risky borrowers more quickly, but he said: “I know, as many of you do, that this resulted in an explosion of fast-tracked mortgages, so it became the norm rather than the exception, with some lenders fast-tracking mortgages for first-time buyers with a loan to value of 95 per cent.”
He added: “Intermediaries quickly realised which lenders would and would not ask for proof of income and so fast tracking became a substitute for self-certification in many cases.
“In fact, one large rating agency has recently reported that fast tracking has become an adverse loan characteristic that produces arrears rates that are worse than income verified products.”
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Readers' comments (11)
Anonymous | 13 Nov 2009 2:45 pm
Where does Mr Pain get his information from. Show us proof where a large rating agency stated fast track became an adverse loan characteristic. I think he pulling facts from his backside...a pain in the...
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Julian Stevens | 13 Nov 2009 2:58 pm
Mr Pain is correct in that mortgage lending practices have become subject to more sensible and stringent underwriting criteria and this is undoubtedly a good thing for the long term health of lending markets.
But there are still far too many lenders whose underwriting requirements are so stringent as to make getting a mortgage from them all but impossible. If you only want a very low LTV, a very modest income multiple, have a huge deposit, a spotless credit record and the property is absolutely mint condition, then fine but for everyone else their criteria are about as difficult as getting car or house insurance from Direct Line.
I'm very glad not be a mortgage broker in this day and age.
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Anonymous | 13 Nov 2009 3:10 pm
Only if the appetite for securitsed loans returns Mr Pain, a load of lending to undesireables which is then branded with an off the shelf credit rating and promptly sold to some stupid investors was the problem. Why is this form of lending allowed under TCF? Don't the borrowers have a right to know who will be owing their mortgage, or even a part of it..
I have had a C&G mortgage for decades, never been able to verify income, never, ever, missed a payment because I would rather sell my soul in order to maintain my credit score which is the highest possible. Does that make me a high risk?
Should I be singled out for the regulatory heavy hand?
Your fears are, largely, unfounded.
Your solutions might not be the most appropriate in a well-educated society such as this. Whatever happened to Caveat emptor? RIP?
Consumers are their worst enemies, but regulators will ensure that the fools and their money are not parted, all in the name of 'protectionism' gone mad.
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FC | 13 Nov 2009 3:33 pm
Re first post the CRA is Moodys in their report what drives UK mortgages into default. Also, it's hard enough trying to work in the industry without you resorting to gratuitous insults. Is there any chance the moderator could try and retain for us a semblance of credibility.
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Louise Arnold | 13 Nov 2009 3:47 pm
I am a mortgage consultant (whole of market) and yes the criteria has got much tougher. However on a point about submitting fasttrack applications - I always ask for and keep copies of income proof on file - so even if the lender doesn't want to see it I have it as proof that they have the income they save they have. I would never risk my principles, morals or reputation or indeed my licence to submit an application where the clients income did not match the product!
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Anonymous | 13 Nov 2009 4:37 pm
I work in the same way as Louise and always have done. As an IFA first and mortgage broker second I have to have verifiable income figures and plausable projections in order to make a decision on the timing of when (if at all) a client should put money in a pension and on their level of appropriate life and CIC cover dependant upon likely ongoing income post death/CI for the family. This is why I have never actually DONE a self cert mortgage. I have done full cert, impaired credit etc, but never could work out how I could have one set of records on file showing a clinet had X taxable income and anotehr showing a different figure without committing fraud!
Ironically, the only mortgage I have ever had declined was for one of my better off clients due who was a little older than the norm for a B2L due to the failure of underwriters to actually underwrite (caused by rigid underwriting required for securitisation), the only other mortgage I have struiggled with when I actually thought the client should go ahead was an equity release mortgage where the property was weatherboard construction and nearly all the EL lenders securitse and hend undewriters will NOT consider anything which is round going in a square hole. Fortunately Hodge Life lend their own money and hence the underwriter is making a lending decision for their principal and NOT to put a portfolio together to securitise and sell on.
I think for once, I agree with Mr Pain usually I think he's a bit of a poor speaker.
The Mortgage review DP is an opportunity to think during this slow period of mortgages and put together a robust workable solution to the self cert problems before money is available to lend, but with no clearly defined working practices which protect the lender and adviser while achieveing a fair balance of defending the consumer from some wide boys in the mortgage induistry and there are not many, but tehre are some and a bit of structure on self Cert has been on the cards since MCCB days and I'm just surprised it took 6 years to occur.
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Incompetent Regulators Awards | 13 Nov 2009 4:51 pm
If the lenders want to take the risk then that's their problem. It shouldn't be a matter for the FSA to poke it's nose in. Lenders who lose out will soon learn. But thanks to the incompetent FSA, it's no good trying to be sanctimonious after the horse has bolted.
Go and get a proper job F-Pack boys and sweep the streets and be really productive.
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Anonymous | 13 Nov 2009 4:59 pm
So caution will be forgotten will it, and could the same therefore apply to the regulator.Not that they have ever behaved in a cavalier fashion,have they??!!
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Little old me... | 13 Nov 2009 5:03 pm
Er, why did the FSA not act at the time if Fast Track was taking hold in the manner you correctly describe?
In regard to the output from the speech, or unfortunately lack of it; we actually all know what took place and why it took place and also the makeup of lenders! It would be nice to hear something proactive which described how the FSA are going to work with the markets rather then take the irksome egocentric approach which addresses problems by removing them as apposed to more progressive modification? It really is all becoming very uncomfortably condescending whenever someone from the FSA makes a speech these days.
However, nice to see the FSA can now demonstrate it appears to know the difference between fast track and self-cert. Well done!
Jon, if you are reading this, a tip from little old me….Markets and businesses actually get better by adapting to circumstances. A product or approach being misused does not necessarily make the product wrong. Quite simple really. Which might suggest the FSA should not look to overly curtail individual business models of non-banks? Better to recognize how such models may augment the mortgage market by spreading the lending risk? In this context, why not also consider leaving the BS commission to deal with its own members in respect of prudential lending standards?
So if I may reiterate, it is very rude to act continually in a patronizing manner and trying to ‘educate’ people by additionally ‘beating’ them is really not a smart tactic. And importantly, THERE NO SUCH THING AS RISK FREE LENDING…honest.
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Anonymous | 13 Nov 2009 9:29 pm
Only if the appetite for securitsed loans returns Mr Pain, a load of lending to undesireables which is then branded with an off the shelf credit rating and promptly sold to some stupid investors was the problem. Why is this form of lending allowed under TCF? Don't the borrowers have a right to know who will be owing their mortgage, or even a part of it..
I have had a C&G mortgage for decades, never been able to verify income, never, ever, missed a payment because I would rather sell my soul in order to maintain my credit score which is the highest possible. Does that make me a high risk?
Should I be singled out for the regulatory heavy hand?
Your fears are, largely, unfounded.
Your solutions might not be the most appropriate in a well-educated society such as this. Whatever happened to Caveat emptor? RIP?
Consumers are their worst enemies, but regulators will ensure that the fools and their money are not parted, all in the name of 'protectionism' gone mad.
Unsuitable or offensive? Report this comment