The Financial Services Authority (FSA) has released their mortgage market review discussion paper and they have outlined their proposal for tougher regulations. It is evident that they will be more authoritarian and intrusive in the way they regulate the mortgage industry in future.
The FSA want to control the industry as they believe the industry is incapable of self control and regulation. This new level of bureaucracy will of course be more expensive for the mortgage lenders and will ultimately create more jobs in the FSA which the taxpayer will end up paying for on top of the already burdening national debt.
The key features of the FSA review document are:-
- Mortgage lenders should be responsible for assessing the capability of a new borrower to afford the new mortgage and ensure that they have sufficient free disposable income remaining.
- Banning mortgage lenders from providing borrowers with mortgages that have a high loan-to-value ratio when the borrower already has a poor credit history. This type of borrowing was mainly responsible for our current toxic debt crisis.
- Ban all self-cert mortgages. This is where a mortgage borrower can self verify their income in order to secure a loan.
- Prohibit lenders from charging for arrears when the mortgage borrower is already repaying and ensuring that mortgage lenders do not continue profiting from borrowers in arrears.
- All mortgage advisers will be required to be personally responsible to the FSA.
- All buy-to-let mortgages and secured homeowner loans to be regulated by the FSA.
The mortgage market has until the 30th January 2010 to respond to this consultation document. If these changes are implemented they will be phased in according to the immediate level of harm caused, like arrears.
Whilst steps have been required to make mortgage lenders more responsible for assessing borrowers’ ability to pay, it seems unfair to ban all self-certification mortgages. It has been the responsibility of the mortgage adviser to see proof of earning before submitting a self-cert mortgage application. Self-cert mortgages were originally introduced for the self-employed.
It is important that the FSA makes certain that mortgage lenders only lend to borrowers who can afford to pay the money back and they do not get involved in high risk lending as seen in the last ten years. Responsible lending is long overdue.
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