Offering their opinion in Market Watch this week are:
Robert Sinclair, director of the Association of Mortgage Intermediaries (AMI)
Paul Broadhead, head of mortgage policy at the Building Societies Association (BSA)
Bill Warren, managing director of Bill Warren Compliance
Robert Sinclair, director of AMI
As the industry awaits the next MMR paper, whilst many are critical of the FSA, it is clear that many of the practices of 2003 to 2007 did not serve all consumers well.
Many on state benefits were badly advised to execute their right to buy; there was too much interest only without credible repayment plans and too many still borrowing past a plausible retirement age.
Much of this was also completed on a non-advised basis without the help of qualified people.
The debate is to what extent do we need new regulatory rules to prevent us returning to such practices that are now extinct?
It is also true that it was not a lack of rules in the first place that caused the problem.
It was a market exuberance that was not tempered by credible supervision.
The FSA supervision seen today would have prevented much of the above. There are times when firms have to copy others’ bad behaviour to survive and the regulator’s job is to keep a sensible level playing field.
Where I will give the FSA credit is that its mortgage policy team have tried to go the extra mile on MMR to consult with the industry.
I even think that it has tried to understand why we were objecting to some matters even when they believed they were right.
Where we have seen issues in previous MMR drafts is a gap between the declared policy intentions and the rules delivered.
I am confident from recent discussions that the policy team have been listening with an open mind to all parts of the industry – to those who represent consumers, lenders and brokers.
We all want an effective and sustainable market, which is competitive. Indeed, it would be hard to destabilise a market further from the paltry levels seen today.
I remain hopeful that we will see carefully selected rules from all of the ideas promoted in the consultations, which target the key issues.
Only in this way can we rebuild trust between the industry and the regulator.
Paul Broadhead, head of mortgage policy at the BSA
Thankfully, earlier this year, the FSA confirmed that it will not expect lenders to ‘crystal ball gaze’ when assessing borrowers’ affordability; although I would find such a tool useful in assessing the impact of the reforms with certainty.
When Lord Turner announced in July that the latest proposals would be delayed, this was primarily due to the complexity of the impact assessment.
He also admitted that it was important to reach a social consensus to understand the price worth paying for reform and felt strongly that the proposals should be subject to a wide ranging debate.
Assuming that the FSA remains true to its word and gives serious consideration to the arguments and evidence provided by stakeholders, we can be hopeful that the proposals will provide clarity to lenders and that there will be less detriment (as a result of the changes) to borrowers.
Intellectual disagreement supported by empirical evidence ought to lead to better and more robust policy making.
However radical or otherwise the reforms are, the transitional arrangements will be vital.
If reforms result in a smaller mortgage market, with fewer borrowers able to obtain finance, existing borrowers meeting their payments should not be penalised by an inability to remortgage at the end of their deal.
Affordability is not simply a mathematical exercise at application stage; a track record demonstrates a willingness and ability to repay and should remain a major factor.
Finally, it is vital that the impact assessment is robust.
It must take account of different consumer segments and assess wider welfare impacts.
It is important to understand how the proposals fit with other regulatory interventions such as the Supervisory Enhancement Programme, changes to prudential regulations, and interventions from Europe.
The implementation timeframe must also pay close attention to prevailing market conditions.
To implement reform without this full analysis could prove costly.
Bill Warren, managing director of Bill Warren Compliance
The term intrusive has become one of the words of 2011, following the FSA’s continual use of it in speeches and other communications.
If this theme continues into, what we assume, are the final MMR proposals, the potential for destabilising the market certainly exists.
Will it have that effect? Yes, maybe, in my opinion, not that I like the role of doom merchant.
However, if affordability is going to remain the cornerstone of the MMR proposals, as has been stated publically by FSA directors, the result could be to further inhibit the resurgence of more products and the confidence of consumers.
If consumers’ ability to borrow is inhibited by unrealistic FSA requirements, no doubt politicians, builders and many more in the mortgage industry desperate for economic improvement will be in uproar.
The MMR proposals will almost certainly impact higher LTV lending, as this is still seen as a “sin” it seems by the FSA.
It will also increase mortgage advisers’ need to provide even more detailed information to potential borrowers, maintain high quality records and continue to justify recommendations in great detail.
This leads to the potential cost, therefore, of more “intrusive” compliance monitoring, required by firms to potentially defend themselves from the regulator and FOS, and which will almost certainly be demanded by PII providers.
This will see yet another increased overhead cost added to firms, which has to be paid for, in many situations going forward, by way of an upfront client fee.
The industry must demand from the FSA better and more detailed guidance than previously provided and, although it goes against the grain, more detailed MCOB rules.
This will mean intermediary firms especially are better able maintain consumers’ faith in their advice and practical support from the profession.
