New Mortgage Proposals: More Common Sense Required, Not More Regulation!
The news that the Financial Services Authority has issued its plans to repair the barn doors of the mortgage industry has received a mixed response.
Leaving aside obvious jibes about more points scoring than credit scoring, there is at least a return to a common sense approach to mortgage lending.
The headlines have centred on the abolition of so called self certification loans. “Toxic Combination” loans will be also banned in the proposals i.e. those loans with a high loan to value for somebody with a poor credit history.
True, these loans were oversold in the heady days of 2006-2007, but this is an easy shot at a predictable target.
Let us not forget that a major contribution to the debacle of the last 2 years was the seeming ease that original loans could be bundled up by financial institutions into securitised packages. These loans were further rebundled and so on, in a scheme which was part Pyramid selling and part Emperor’s clothes. An initial loan of £100,000 taken out by a home buyer could easily multiply into a final loan of 5 times as much.
It is a relief that Lenders will not be restricted to artificially set cap on loans to value or loans to income.
What comes through loud and clear is that the Lenders will be held ultimately responsible for assessing a borrower’s ability to repay the loan, taking in all the circumstances.
The Banks and Building Society cost cutting measures have proved to be a false economy.
A Radical Solution :
We do not need to delve too far into the past to seek clues for a better proposition.
Before the major Lenders fell prey to shareholder pressure to cut costs (come in credit scoring, you’re moment has arrived), decisions were made by Bank Managers and Building Society Managers.
By and large, this was done by personal knowledge, with “customer facing” interviews (although we didn’t know it at the time) and based on the skill and expertise of the Manager as to whether or not a person was worthy of a mortgage.
Is it Happening Already? :
Well possibly. The fact that the FSA has not gone further with its proposed regulation, may lead to such a conclusion.
The FSA may already have seen a more prudent lending regime over the last year or so.
Research by the Daily Telegraph, released this week states that half of all home buyers are having their mortgage requests rejected This in a mortgage market where the number of approved mortgages is rising each month. The Banks and Building Societies are clearly pursuing a strategy of fighting only for the best : a flight to quality applicants.
So there you have it. Not more blunt instrument legislation, but empowered human beings with experience. Radical eh?