Speaking at the Council of Mortgage Lenders conference today, Pain said the FSA now wished to encourage growth in mortgage lending in a way that properly reflects risk.
Pain said: “There is no doubt that during the boom years the number of mortgage intermediaries grew to levels that we can all now see, in hindsight, were – like some of the lending that resulted – probably unsustainable.
“We have now seen much of this unravel.
“Mortgage approvals are falling, with lenders concentrating their efforts on securing the lowest-risk borrowers, and the number of brokers is falling.
“The lending market is now wholly dominated by probably six large, balance sheet lenders.
“And with the recent pass through of the Northern Rock Granite structure, we are unlikely to see any early, restoration of securitisation markets.”
Pain also said the FSA would be taking a step back to look at how much it was necessary to intervene in the mortgage market.
He said: “People ask us, should we ban self-certification mortgages? Should we stop lenders offering 100 per cent plus mortgages?
“Should affordability tests be more rigid? How do we balance the needs of non-standard customers with lenders’ lower risk appetite. Should we look more like a product regulator?”
“I don’t think we should answer the questions piecemeal – now is the right time for us to address the big issues, and I believe we have a market with the CML that is willing to take an open mind and collaborate with us, learning from the past, and making sure that we get a more sustainable market in the future.”
Pain also took the opportunity to comment on lenders’ ‘tracker collars’, where tracker rates have limits of as much as 3 per cent.
He said: “One of the areas is the unfair contract terms for tracker mortgages. Whilst tracker floors can be legitimate terms of a mortgage, it can only be if it is clear and unambiguous to the consumer and is consistently and prominently spelled out in the initial KFI and offer document and throughout the sales process.
“I am well aware of the counter risk that some lenders face in a low-interest environment, but quite frankly the solution cannot be a contract term that does not exist or is unenforceable.”