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News Story
FSA bares teeth on broker regulation and self-cert
Monday 19th October 2009The Financial Services Authority (FSA) has laid out proposals today set to change the face of the mortgage market with what it called its most ‘intrusive and interventionist’ proposals to date.
The FSA proposals also include requiring all mortgage advisers to be personally accountable to the FSA, which throws up questions over brokers operating as Appointed Representatives and how long the FSA would allow third-party regulation to continue.
In its scope, the review shows the watchdog’s newer, more rigorous approach to the mortgage market in a bid to make the market work better for consumers with proposals to ban self-cert mortgages. The regulator also sets out proposals to regulate buy-to-let mortgages alongside all other home associated lending.
Other key features in the review include imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay. It also intends to ban ‘self-cert’ mortgages through required verification of borrowers’ income.
The review summary also said it intended to ban the sale of products which contain certain ‘toxic combinations’ of characteristics that put borrowers at risk and planned to ban arrears charges when a borrower is already repaying and clamp down on firms profiting from people in arrears.
Jon Pain, FSA managing director of supervision, said: “The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified."
He continued: “The paper sets out the main findings of the FSA’s comprehensive analysis of the mortgage market. It clearly shows a rapid explosion in mortgage products; the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end."
“The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms.”
The review has also identified that the irresponsible lending practices seen in the market until recently will be curtailed by the FSA’ s existing work on capital and liquidity, it said.
The proposals are designed to tackle the problems identified while maintaining a vibrant and sustainable market. But the FSA has not ruled out further change if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.
The discussion paper proposals will be offered to the industry for consultation until 30 January 2010 and the FSA will be actively seeking views from consumer groups and industry. A feedback statement will be published in March. Implementation will be phased, with the focus on speed for areas of high detriment, such as arrears.
The Council of Mortgage Lenders commented that it was “ironic that at the same time as politicians are seeking to encourage lenders to increase their flow of mortgage lending to consumers, they are also keen to take steps to address the perception of "irresponsible lending".
“While the FSA's discussion paper is well thought out and logical, some of the wider political rhetoric around lending issues continues to seem more conducive to rabble-rousing than to properly considered debate,” it said.
The CML drew out the FSA’s comment that sometimes, it needed to "protect consumers from themselves".
Michael Coogan, CML director general, said: "We agree with the FSA that regulation in itself cannot resolve the problems of the recent market. However, we also agree that clearly delineated responsibilities, which remove regulatory ambivalence, will help lenders, intermediaries and consumers to know where they stand, and to accept the consequences of their actions.
"As always with regulatory change, the devil may be in the detail. But we welcome the consultative approach, and look forward to working with the FSA to ensure that the objective of regulatory fairness between lenders, intermediaries and consumers is achieved in practice."
John Luke Busby, director, French mortgage specialist, Athena Mortgages, commented: "The FSA, it would seem, has been looking across the channel to France for direction when drafting its proposals. French banks are willing to let you spend 33% of your gross income on servicing all your borrowings, but that's it. It may seem a bit hard to stomach at first to UK borrowers who have been indulged over the years, but French lenders — and borrowers — have ridden out the credit crunch and recession considerably better than their UK counterparts."
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Report Abuse Get Profile | well hey there guys, i've been looking all over the internet for a GOOD black hat SEO forum.. I was looking for some suggestions from you guys to point me in the right direction. Thanks a bunch, this place is great btw. |
Get Profile | THE FSA ARE SO OUT OF TOUCH IT IS BEYOND BELIEF.THEY ARE FULL OF TOILET TRAINED LIFE ASSURANCE PEOPLE AND BUILDING SOCIETY PEOPLE WHO HAVE NO IDEA ABOUT BUSINESS.TO BAN SELF CERT AS A GOOD MANY HAVE SAID IS RECKLESS AND WILL PROLONG THE HOUSING PROBLEMS.LORDY LORDY PLEASE CAN WE GET RID OF THIS GOVT AND BAN THE FSA AS THE CONSERVATIVES HAVE PROMISED BUT PLEASE MR TURNER DONT THINK OF APPLYING FOR THE BOE JOB BECAUSE YOU ARE NOT OF THE CALIBRE THAT IS REQUIRED.PLEASE EVERYONE WRITE TO YOUR MP AND DONT STAY SILENT YOUR LIVELIHOODS ARE AT RISK. |
Get Profile | It seems that FSA has not learnt or for some reasons does not want to learn that they have played a major role in the UK’s credit crunch. Millions of people have lost their livelihood because of FSA’s policies. New curbs on self-cert and fast track mortgages will have a severe negative impact of the magnitude, which has never been experienced before in the UK housing market. Instead of helping the already depressed housing market, FSA wants lenders to rigorously restrict the lending by placing new curbs on mortgage lending and hence another attempt by FSA to deprive the UK economy of any chance of improving. Hurrah FSA! A recent history suggests that FSA is only interested to impose regulations. FSA started to regulate financial intermediaries in 2005 by imposing a fee of £1000+ on each individual firm and forced them to submit their regulatory returns on six monthly bases. The 80 % of these returns consists of financial accounts of individual firms. It seems that FSA just wants to know how much each individual firm is earning. What is the benefit FSA getting out of this? Businesses normally prepare their yearly tax returns anyway. Not to mention the fact that the half yearly returns may not be accurate and as a result may be misleading. FSA has just created more burdens on individual firms who instead of concentrating on the professional service they are supposed to offer to public, keep on worrying about submitting their returns on time. It’s an absolute waste of resources on both sides. FSA has also wasted millions of pounds of the public’s money to buy new online software for these useless returns to be submitted. Well Done FSA! It is about time that FSA stops playing the big brother role and instead starts helping to revive the economy by de-regulating not by introducing more regulations. No one wants another house price crash, deeper recession, never-ending job losses, repossessions and millions of families surviving on benefits. The government should abolish FSA if they do not want to see a deeper economic crisis. Only for the sake of getting rid of FSA, this time I would vote Conservatives instead of the usual Labour. |
Get Profile | If self cert and fast track are banned - and I think they should be - then you are likely to see a revision of how underwriters operate. That is lenders will revert to using human underwriters and will revise underwriting manuals to correctly reflect how people earn their income. Self employed people are able to prove income, it may be not be with payslips, but good underwriters will allow adding back of some expenses, the redirection of spouses income for underwriting purposes and also add back things like dividends. The call should be for proper underwriting and full account of all income - somebody with three jobs is not likely to lose them all. Underwriting criteria will change, lenders will need to lend and will adapt. As to the french way of using a percentage of gross income to calculate affordability, with interest rates at low levels the amount that can be borrowed will probably exceed that available on an inflated self cert income. |
Get Profile | Well said Michael - those critics are picking up the wrong end of the stick and assuming everyone is corrupt. I agree that employed fast-tracking is a bit of a contradiction, but for the s/e fast-tracking is vital. Unless of course the lenders change their policy and not compare 3 yrs worth of Net Profit to 3 months (very often 1 month's) salary. Why don't we all go on strike like the Posties. |
Get Profile | Another short sighted, little thought out regulatory blunder which may lead to may millions of self employed people being unable to raise mortgages. A few of points to consider 1. Many self employed people or directors of small family businesses raise money secured by their residential property to expand their businesses, consolidate expensive short term loans and to create working capital for future growth which would all lead to higher net profits. By self certifying their projected income they are able to achieve the increased levels, however without a self certification facility all these people would be rejected. 2. When a new company begins, the first years accounts are normally prepared about 10 months after the end of the first year (i.e. 22 months after the business starts). Without a self certification mortgage none of these self employed people will qualify for a mortgage for up to 4 years after commencing the business (as many banks require three years net profit), whereas their employees will all be able to apply for a mortgage using just a few months salary slips! 3. Although the business owner would be the last person to qualify for a mortgage under a regime which bans self certification mortgages as above, he is quite likely to be earning more than his staff and in the event that the business fails he will always be the LAST person to lose his job. 4. Since the 1980s a substantial number of people have started businesses and bought or raised money secured by property using self certification mortgages creating and redistributing enormous capital wealth throughout the UK economy. Do we really want to penalise the small business owning entrepreneurs who have contributed so valuably to this open free market economy where effort, hard work and some speculation can achieve success for everyone. Do we want to revert to the bank underwriting practices of the 1970s and before when we were predominately a nation of employee tenants who had little interest adding value to their jobs or their homes as that value was rarely shared with them |
Get Profile | As a mortgage broker I hang my head in dismay at the proposals from the FSA, almost all the IFAs and brokers in this industry follow the rules of TCF and the 11 principles of the FSA, and believe it or not the vast majority of brokers and the lending organisation do the same as it is not in there interest to make our clients venerable to loosing the homes they live in, the FSA are responsible for the problems we are in along side the other culprits (Government & BOE) for doing the very thing that they accuse the brokers for causing by ignoring Affordability to pay by clients, it strikes me that the very people Who should be in the firing line for Not doing their job properly in the first place are now the very people passing on the blame for what has happened to Jo public, I think that the FSA’s Priciple number 12 is “When the s—t hits the fan blame everyone else and state It was not me Gov as it is not in our remit” |
Get Profile | No, No, No, No, No Mr. Cynic you are Soooooooooooo wrong!!! You fail to understand that the FSA ARE the heart of the Problem!!!!!!! Mortgages don’t need more regulation, Loans and Credit Cards do, along with sensible restrictions on the amount of personal debt that a household or an individual can amass. The FSA need to look at the bigger picture such as peoples personal finance not just the soft option of limiting mortgage schemes if they are to prevent another explosion of credit and if they want to achieve stability in the housing market then restricting Mortgage choice to Borrowers, Brokers and Lenders can only be detrimental. Do they have the wherewithal do it??? I DONT THINK SO! “FSA Just keep doing what you’ve always done and you will always win what you always won” - The contempt of all who you purport to regulate. |
Get Profile | You will witness the mother of all house price crashes in the next couple of years if fast track and self cert were axed. It will leave shed loads of homeowners in negative equity for years, if not a good decade plus. This would leave lenders exposed if homeowners are in negative equity. If the homeowner loses his job/gets divorced/becomes ill for a long time and can't keep up the mortgage repayments, he can hand the keys back to the lender, and the lender makes a loss. These repossessions could happen 50,000 times a year in the UK. Can the last person leaving the UK, please turn off the lights? Thank you |
Get Profile | At last, the FSA go straight to the heart of the problem. Our affordability calculations at the moment are obviously compeltely misleading, designed to deceive consumers into thinking they can afford a monthly mortgage payment far in excess of their monthly disposable income. Well done the FSA for publishing how stupid you think the general public is, and how deviant you believe all lenders and brokers to be. Hurrah for the FSA! |
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