Bolton, now European sales director of Clayton Eurorisk, said investors will never have the confidence to buy UK mortgage backed securities while banks persist in trying to save “fast-track liar loans” from the regulatory axe.
But Iain Laing, chief credit officer at Abbey for Intermediaries and Santander, says to call fast-track “liar loans” was “really out of context”.
He said: “Liar loans refer to self-cert in the US, not fast track in the UK. To clear up any confusion remaining around fast track we are now calling this type of loan point of sale validation and that still amounts to the broker checking income and Santander checking that the broker has checked income.
“We do random sampling on fast track cases that picks up the brokers who are not verifying income and they are cut from our panel immediately if they fail to show sufficient evidence.
“In our experience brokers are checking these loans to our own and wider underwriting standards and we are satisfied with our controls. That is reflected in the fact that these loans perform well with low arrears - partly because we only offer them on good quality apps.”
Laing added that investors he had spoken to did not seem to have a problem with the fast track loans done with the controls AfI and Santander have in place.
He said ratings agencies Moody’s, Fitch and Standard & Poor’s had, in his experience, “no issue with fast track at least in the way we operate it”.
PMS executive chairman, John Malone, added that it would be a blow to the industry to lose the type of fast track offered by lenders such as Abbey for Intermediaries.
“Over the last six months AfI has enjoyed success with intermediaries in their support of the fast track proposition,” he said.
“On the basis that brokers know they have to retain the appropriate verification to support the transaction, failure to comply means they are struck off from submitting business to AfI for three month period. I think what AfI is doing is extremely important to the market.”
Principal at Highclere Financial Services, Alan Lakey, said to use the phrase “liar loans” was emotive and lenders should be able to make decisions appropriate to each case.
“Surely the issue is whether lenders can use their commercial judgement regarding the level of checks and balances they deem appropriate,” he said. “Lending decisions are not purely the assessment of provable income - they must include a consideration of the risk based on loan-to-value, past history, potential income and other salient factors.”
Bolton defended his position today, saying that the key point in his argument was to reinstate trust in the quality of mortgages being written.
“It is incumbent on the market to encourage investors back,” he said. “Otherwise the number of mortgage participants on both sides will continue to shrink as the market shrinks.”
Mortgage Introducer reported yesterday that Bolton said: “Lenders appear still to be dragging their heels on fast track but there is no justification for it staying. It’s as open to abuse as self-cert is. It’s just another version of a liar loan.”
Fast track loans were tipped for the scrapheap last summer when the Financial Services Authority published CP 10/16, which expressed concern that fast-track mortgages would be “gamed” if self-cert mortgages were culled.
