The FSA has published its Mortgage Market Review (MMR) feedback statement summarising the responses received following its MMR discussion paper published on 19 October 2009.
Respondents did not support imposing an LTV/LTI/DTI cap on consumer protection grounds. There was support for the proposal to prohibit mortgages sales to borrowers with multiple high-risk characteristics but nonetheless the majority of respondents were still opposed to a ban.
The FSA found its proposal to make income verification a requirement for all mortgages generated a polarised reaction. Those that supported the proposal argued everyone should be able to verify income, even if the income sources are diverse or the income streams irregular. Support was particularly strong from consumer bodies, but also from smaller lenders, intermediaries and some trade associations.
Objections were raised mainly by large lenders, who argued that the proposals would impact negatively on the self-employed, which will trigger an increased usage of fraudulent income documentation. They also felt that it would increase administrative costs, as some mortgages should be considered ‘low risk’ and would, therefore, not require income verification.
The regulator reported that the overwhelming majority of respondents agreed that lenders should be ultimately responsible for assessing affordability. Some concern was expressed that this could be misinterpreted as implying that consumers held no responsibility for their borrowing decisions.
The FSA expects to publish two further consultation papers this year. One in Q3 which will cover the work streams of its highest priority – income verification and affordability assessments, non-deposit taking lenders and product regulation (lending thresholds and prohibiting loans with multiple high-risk characteristics).
In Q4 the regulator will publish a consultation paper on distribution (selling standards, intermediary affordability assessments and professionalism) and disclosure.