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Ray Boulger: Figuring out FSA

Lobbying from the Association of Mortgage Intermediaries and others helped persuade the FSA in its mortgage market review not to adopt some of the uninformed suggestions from certain politicians and so the MMR does not propose loan to value or loan to income caps.

Some other proposals are very sensible, including the new names for different types of advised and non-advised sales, and the FSA’s belated recognition that individuals giving advice or information to borrowers should be registered at the FSA as approved persons.

However, I suspect there is a Catch-22 situation in the proposals for non-advised sales. On the face of it, the new proposal to use the term “non-advised sale” should be clear to borrowers but then so should the current term of “information-only”. The more questions that a customer is asked before a “non-advised sale” takes place the more likely it is that they will think they have had advice, whatever they are told regarding the type of sale.

With the MMR proposing that more questions should be asked to establish affordability, including on non-advised sales, it may be necessary to go further to make sure customers understand when they have not had advice. The MMR’s emphasis on oral information is sensible but will be difficult to monitor. Maybe on non-advised sales customers should sign a short one-paragraph statement confirming they understand they have not advice and the implications in respect of access to the ombudsman.

On the negative side, two proposals in the MMR which need to be challenged are the banning of self-cert and fast track and restrictions on equity withdrawal. The former appears to be based largely on a failure by the FSA to fully understand the difference between self-cert and fast-track. The justification for the latter is that “by 2007, home-purchase equity withdrawal replaced home purchase as the main purpose of mortgage borrowing” and that “39 per cent of all mortgages sold in 2007 were advanced for this purpose.”

I could not work out how the FSA got this 39 per cent figure and wondered if “home purchase equity withdrawal” was something different to “equity withdrawal.” I asked the Council of Mortgage Lenders if it understood this figure but it was also puzzled and consequently it asked the FSA for clarification. The FSA response was that including the words “home purchase” was a “drafting error” and that 39 per cent was based on Bank of England figures of £42bn for housing equity withdrawal and £108bn for net lending in 2007.

Thus. the justification for restricting equity withdrawal is based on the out of date figures of a single year. I cannot imagine why the FSA did not use the latest figures, that is, 2008. Surely, it cannot be because the latest figures do not support its hypothesis.

In 2008, housing equity withdrawal was negative at -£9.1bn, with net lending at £40bn, indicating that the market self-corrects, with no need for regulatory intervention.

Or maybe it simply could not work out what percentage of sales a negative figure was.

Ray Boulger is senior technical manager at John Charcol


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Michael White CEO Email Mortgages 6th November 2009 at 5:21 pm

    And I just thought that too many people in positions of influence within the FSA are simply and quite hopelessly divorced from reality. It would appear I have been far too generous in my estimation.

    A more accurate description would be closer aligned to the workings of a true oligarchy?

    Hector Sants said, back in 2005, I quote: “A key underlying point is that our approach to policy is to intervene only when we can demonstrate market failure or an opportunity to improve market efficiency”

    Perhaps he meant to say ” Our approach is intervene in the financial markets when we care to and to enact whatever policies we feel are correct because we will always know best”?

  2. Or maybe, as this article seems to imply, the FSA just doesn’t really know what it’s doing on mortgage regulation. So what’s new?

  3. What is a ‘non-advised sale’?

    During extensive research using one of my websites I’ve had consumers asking me for help with these ‘sales’, they have no idea what it is all about, in one case the lender sent a letter along the lines of ‘your current deal is coming to and end and your payments may increase SUBSTANTIALLY”, The only thing these people saw was SUBSTANTIALLY, it scared them silly so they rang the ‘call centre’ to ask what offers they had, they were ‘guided’ to a fixed rate of 5.99% when rates were dropping like a stone.

    They wanted to complain but I told them they had signed the acceptance of offer which said they had not been given advice so they had no recourse to redress, they said WHERE, so I said THERE.

    “Non-advised”? What is that then? When I was an IFA it was a mirage.

  4. Picking up on what Evan said about “non advised” sales and what Ray Boulger said “The MMR’s emphasis on oral information is sensible but will be difficult to monitor”. Bearing in mind the whole operation in Evan’s example was by phone and was in all probability a recorded telephoen call, if would be VERY easy to monitor oral disclosure provided the recordingw as kept. Our firm keeps ALL telephone calls and client meeting recordings as MP3 and wav.files and the FSA know this is possible (as I have the letter from Lesley Titcombe and the recording of my discussion with the two members of the FSA team she allocated discussing this issue if anyone would like to listen to it!)
    Hearing the truth in ones own words is a good way to realise when you’ve got something wrong or when a client has misinterpreted something.

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