Mortgage policy manager Lynda Blackwell said some stakeholders appear to have mistaken its proposals for its final rules.

“Setting out suggested approaches in a consultation paper is not setting out the right answers,” Blackwell said at a conference in Leicester yesterday.

In a fresh veiled attack on the Council of Mortgage Lenders (CML), Blackwell added suggestions the FSA is “steam-rolling” through the MMR are wide of the mark.

“We read comments that we appear determined to implement a particular set of regulatory measures irrespective of their impact on the economy and the market and irrespective of the views of others,” she said. “Well, that’s wrong.”

In October last year, the CML claimed that, had the MMR’s proposals been in place between 2005 and 2009, almost four million mortgages may not have been granted.

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Blackwell said yesterday: “The question I’ve been asked to address is: ‘How will the MMR create a sustainable market for lenders, brokers and borrowers?’

“Some industry commentators, of course, have already shared their views on this – i.e. it won’t!. My reaction is that the MMR will achieve this if we all work constructively together to achieve it.”

Blackwell reiterated the FSA’s aim for the MMR: to put affordability back at the heart of mortgage lending and ensure both borrowers and lenders act responsibly.

She said the regulator had made some progress in identifying and acting on the mortgage arena’s ills.

It first strengthened its requirements to ensure borrowers in arrears are treated fairly before finalising its proposals for an approved persons regime for the mortgage market, she said.

Returning to the existing problems in the market, Blackwell said there needs to be a return to a more healthy correlation between house prices and average incomes.

Currently, an average house – at £164,000 – is worth about five times the income of an average borrower.

However, while this would benefit first time buyers, it could mean existing borrowers find themselves in negative equity or less able to move up the property ladder.

“These are issues we are looking at closely as part of our overall assessment of the impact of our proposals,” she said.

Arrears rates remain a key concern for the regulator, she added, pointing out lenders are capitalising borrowers’ arrears at an increasingly rapid rate.

While some 18,000 accounts worth £82m were capitalised in the Q1 last year, just 700 cases in arrears were cured. “It is not a very healthy picture,” she said.