Keeping the FSA on the straight and narrow

Tuesday 24th November 2009

By Phil Whitehouse, head of The Mortgage Alliance (TMA)

The mortgage market has never really been one for hiding its light under a bushel but the past month or so in particular has seen some industry voices being raised a little louder than normal.
As I touched on in my last blog the intermediary market has had plenty to say regarding the FSA’s Mortgage Market Review and it has been interesting to keep track on other regulatory views that have cropped up recently. Possibly the biggest headline grabbing comment came out of the recent Council of Mortgage Lenders (CML) Conference where a speech by Matthew Wyles, chairman of the CML saw him commenting that the FSA sees mortgage lenders and intermediaries as “the drug-dealers at the school gates” of the mortgage market.

He added that the regulator sees consumers as wanton children who have a tendency to want what isn’t necessarily good for them, and for whom Nanny knows best. Following up with; “Regulators see lenders and intermediaries as the sweetshop owners – or worse, the drug-dealers at the school gates – of the mortgage market, enticing innocent consumers in and then getting them hooked, for their own evil profit-driven purposes. But is that really the way that we see the market? It certainly isn’t the way I see it.”

This ‘colourful’ language was certainly hard-hitting enough to get the reactions that it was probably aiming for. There have been some questions over the terminology used but I’m not sure that this was a speech to raise controversy for the sake of it. Of course some elements of it were a headline writer’s dream and whilst there may also be some who believe it was a little over the top, Wyles generated some extremely relevant points and areas of debate by questioning some of the FSA’s understanding of the current market.

He said that the regulator risks creating the kind of moral hazard it wishes to avoid, where consumers feel they need to take little or no responsibility for their own financial decisions. And, taken directly from the speech, he added; “In our view the main purpose of regulation should be to ensure a sustainable risk management framework for financial businesses, and a sensible operating framework between businesses and their customers. It should not attempt to wrap consumers in cotton wool and make borrowing risk-free. That is not the nature of lending, and it is not the nature of borrowing. “Arrears” do not automatically equal “detriment” – that would be far too simplistic an analysis.”

Indeed, as intimated in the speech, there will be a group of existing borrowers who will be prevented from taking out a new mortgage with a different lender, or possibly even with their existing lender, in the future and on the surface it does appear that the regulator doesn’t seem to mind if these people drop out of the mortgage market. Now it’s not my intention to have a go at the regulator, after all there is no getting away from how tough a job it is, but it is one that must center on a balanced and well-informed market view.

As we are seeing slow but sure rises in LTV levels and gross lending levels it is vital that the regulator does not suffocate innovation in the market. Attitudes to risk will inevitably mean that lenders will continue to tread carefully but at least there are some signs of criteria bring loosened without the somewhat carefree attitude of old. The regulator must, of course, keep a degree of control and this is generally a good thing but care needs to be taken. Lenders must be allowed to lend and borrowers to borrow as these continue to be the fundamentals of the market. There are obvious concerns that too much control will only stifle any hard fought progress we are currently making and the FSA would be wise to listen to a few select industry voices to ensure this doesn’t happen.

Phil Whitehouse is head of network, The Mortgage Alliance. The Mortgage Alliance has a loyal data base of 7,000 Directly Authorised mortgage intermediaries and as with most firms operating within the mortgage market it is having to overcome a number of obstacles in order to help members write business. He previously worked as a senior manager for Pink Home Loans and spent 25 years with Halifax/Leeds Permanent Building Society running various high street branches. Phil enjoys golf but says: “No matter what I do I cannot get any better and I beat myself up crazily about something that on the face of it is such a simple game."