Its report, Time to Stop Betting the House, slams the FSA for failing to take account of interest rates, house price volatility or volatility in the broader economy in the mortgage market review.
Author David Steven, who is the co-editor of risk and international affairs website Global Dashboard, says the FSA has also failed to use stress tests and consider worst case scenarios.
He says the FSA’s reforms are designed with the last housing bust in mind and may not hold up when future risk factors emerge.
Steven says: “Far from presenting opinions for radical change, the FSA’s analysis is partial and its recommendations timid. If implemented, the new regulatory structures are unlikely to prove robust in future housing crises.
“The FSA is quick to lecture others on the use of stress tests and the need to consider worst case scenarios, yet perplexingly fails to follow its own prescription.”
Steven is calling on the FSA to develop indicators for the resilience of the mortgage market that would provide an early warning system for rising levels of risk.
He also wants the regulator to only implement an interim package of measures from the MMR, while sponsoring a “much broader and far-ranging debate on the future of the market”.
Steven says following the general election the new government should appoint a Royal Commission, independent of industry and regulatory interests, to ask fundamental questions about the market’s future.
He says: “It is clear that the MMR does not offer a viable roadmap for reform.”