Summary of the Response
1. It is important that the Review recognises that in the context of the current financial crisis, the problems in the global and European and UK economies today are a result of liquidity and structural issues arising in global financial markets. They are not a product of a dysfunctional and irresponsible residential mortgage market in the UK and the FSA should be mindful that they are not focusing their attention on fixing the wrong problem.
2. Despite the economic slowdown, FSA arrears statistics show that the overwhelming majority of mortgage borrowers in the UK have been able to continue to make their mortgage repayments. Low interest rates have clearly helped. But it does demonstrate that in the UK, the vast majority of building societies and other mainstream lenders have lent responsibly and have been sympathetic to customers in difficulty.
3. The outcome of the Mortgage Market Review must be proportionate. Whilst many of the proposals are sensible, there is a theme throughout that leads to solutions that are rather disproportionate to some of the perceived failings. The FSA must focus its attention exclusively on those areas where the market has clearly failed and consumer detriment has occurred.
4. The BSA agrees with the FSA assertion that the mortgage market has worked well for the vast majority of consumers. We also agree that the existing supervisory regime has proved to be ineffective in constraining particularly risky lending and borrowing. It is in these areas that targeted change should be implemented.
5. The BSA welcomes steps already taken by the FSA to enhance its supervisory regime. We would recommend a full evaluation of the effectiveness of that regime. This would enable the FSA to make targeted conduct of business changes where there is continuing evidence of consumer detriment.
6. Due regard should be given to the cumulative impact of regulatory change being asked of lenders, in market conditions that are far from ‘business as usual’. The FSA should consider carefully the implementation timeframe of any regulatory proposals to ensure that they are fully warranted and do not compromise the fragile market conditions that currently exist.
7. We do not agree with the premise that because some consumers have behaved recklessly that is in itself a strong enough reason for the FSA to impose greater regulatory intrusion. Furthermore, it is a dangerous and flawed strategy to make the lender fully responsible and accountable for a loan that ends in default, absolving the customer from their duties.
8. We believe that the verification of a borrower’s income should be undertaken by the lender for virtually all mortgage applications.
9. A proportion of borrowers are unable to prove their income, but can demonstrate an ability and willingness to repay their mortgage. These borrowers should not be excluded from the market.
10. We recommend that ‘fast track’ systems remain valid internal processes as long as they are not marketed as a product.
11. We share the FSA’s desire to ensure that all borrowers can afford the loan that they are taking out. However, we do not believe this is best achieved through prescribing affordability assessments.
12. We agree that there is no case for prohibiting the sale of loans above certain LTV, LTI or DTI thresholds on the grounds of either consumer protection or consumer choice.
13. Firms which wish to offer new products with multiple layers of risk should demonstrate to their supervisor that the product meets the needs of the particular customers.
14. The experience and knowledge of consumers entering into the buy to let market varies considerably. Typically, this is a commercial decision taken to invest in property over the medium to long term. As such it is not a matter of simply including these mortgages in the existing/proposed MCOB regime. Inclusion of buy to let in affordability, income and suitability requirements is less straightforward than in standard owner occupied mortgages.
15. We do not agree that the poor practices of some lenders identified in the thematic reviews are indicative of the industry as a whole. We believe that in the main, the vast majority of customers are already treated fairly and are offered a range of solutions to help them manage their arrears under the existing MCOB rules.
16. Changing the use of forbearance tools from 'should be considered' to 'must be considered' may restrict lenders from providing flexible forbearance, based on the individual circumstances of the customer.
17. We strongly oppose the inclusion of specific references to Mortgage Rescue and Homeowner Mortgage Support (HMS) in MCOB 13. Not only are both schemes temporary measures due to end in 2011, but HMS is a voluntary scheme and must remain as such.
The full response can be accessed via the link below:
BSA Response to the Mortgage Market Review DP 09/3