The blame game

26 November 2009 | By Christopher Jarvis

Council of Mortgage Lenders’ chairman Matthew Wyles has vividly depicted the FSA as regarding lenders and brokers as “drug dealers” who take advantage of consumers.

Wyles’ speech to the CML annual conference recently seems to have struck a chord with many in the industry who are frustrated that the regulator appears to have placed little emphasis on consumer responsibility in its response to the credit crisis.

Wyles said: “I have a sneaking suspicion that regulators see consumers as wanton children who have a tendency to want what isn’t necessarily good for them, and for whom nanny knows best.

“Increasingly, I also have the feeling that regulators see lenders and intermediaries as the sweetshop owners - or worse, the drug dealers at the school gates - of the mortgage market, enticing innocent consumers in and then getting them hooked, for their own evil, profit-driven purposes.”

Many in the mortgage business seem to support Wyles’ analysis. They say the FSA’s mortgage market review generalises about the failures of the sector while ignoring the fact that over-zealous borrowers took out loans they would never be able to repay.

The Mortgage Practitioner principal Danny Lovey says: “Matthew has summed up the thoughts of many people in the market on what they believe the FSA thinks. He is brave to have made the point.”

Lovey argues that consumers make financial decisions and are not forced by lenders and brokers to take out loans they cannot pay. He says the FSA should make sure it acknowledges these responsibilities.

He says: “We are not responsible for the consumer’s actions. We can only be responsible for trying to keep them out of trouble.”

John Charcol senior technical manager Ray Boulger applauds Wyles’ outburst. “As chairman of the CML, Matthew is in a good position to pass judgment on the FSA and the MMR. The industry needs people like him to stand up and be counted.”

Boulger believes the FSA’s approach in the MMR has been too broad-brush, saying it should focus on those lenders that have been the worst culprits and who are now seeing mounting arrears.

He says: “If arrears are bad because lending practices were wrong, the FSA should deal with it as they should have dealt with it before. If they know banks have had bad practices for years, they have been sleeping on the job. They should recognise there are some who have been doing things well.”

Boulger also highlights the importance of recognising the role that consumer responsibility has to play. “No one forces a consumer to walk into
He says although the FSA has championed the consumer as the victim, over-regulation will ultimately harm borrowers through higher pricing to offset the costs of compliance and systems.

He says: “In the end, only one party pays the cost of new regulation, the consumer.”

Lovey says the MMR’s “nannyism”, particularly in its proposal to ban “toxic mixes” of products with combinations of high-risk factors, could create a market where it is impossible for many consumers to get a mortgage.

He says: “The opening statement of the MMR offers a range of consumers different options. Then it goes on to talk about toxic mixes and, before you know it, nanny is saying you cannot have a mortgage.”

Lovey fears that the new regulation will exclude contract workers, self-employed people and those who rely on overtime for much of their income, who, in the past, could apply through self-certification.

Stroud & Swindon sales and marketing director Linda Will says Wyles was speaking out against regulator over-reaction.

She says: “Over-supply and great competition are no more, and many people in the industry have learnt their lesson. Too much regulation could crucify a market already on its knees.”

Will does believe the question of consumer responsibility should be addressed. She points to fraudulent self-certification as an example of some borrowers signing up to a mortgage they can ill afford.

She says: “Where people lied about their income, they showed a certain knowledge that they were filing a form giving fraudulent information. Some people should take a degree of responsibility for the situation they got themselves into.”

Bill Warren Compliance managing director Bill Warren says consumers have become apathetic. “I think they have become conditioned over the last four or five years that the politicians will sort things out.”

Many agree with the point that Wyles was trying to make but some question whether it will have a positive effect on the FSA’s relationship with the industry or the industry’s reputation with consumers.

Warren says: “It is not helpful for the public to read that comment but I have been in the presence of many brokers who feel at least there is a lender fighting back.”

 

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