Speaking at the FSA’s mortgage conference today, Pain said he expects these types of sales to increase.
He said: “We have already seen some books sold to unregulated firms and expect sales to increase as more wholesale-funded lenders struggle to manage their arrears. Our primary concern here is consumer protection and what happens when books are sold on.
“So we will look at what needs to change to avoid this happening again and prevent securitisation being used as a vehicle to allow lenders to take on unacceptable levels of risk.”
Pain also said the FSA is considering introducing a requirement for income verification for all mortgages, with lenders required to verify the plausibility and authenticity of the documentation provided by the customer before an offer is made.
He added: “Or should we encourage lenders to lend responsibly through our capital requirements with holders of higher-risk loans having to hold more capital against these than they would for lower-risk loans?”
Pain said full RDR-style changes for mortgage distribution would “probably not be proportionate” because many of the problems exist mainly in the specialist areas of the market.
He said: “Secondly, mortgages are much simpler than investment products as you generally know what you’re getting in advance.
“We are though assessing the extent to which remuneration structures in the market, in subprime in particular, have led to a sales bias, product bias, or to churning that has left consumers with poor value or unaffordable mortgages.”