The latest consultation was lauded after its release by major industry bodies including the Council of Mortgage Lenders, the Building Societies’ Association, the Intermediary Mortgage Lenders Association and the Association of Mortgage Intermediaries.
However since the publication of the paper on 19 December 2011, industry bodies have been gathering feedback for their submissions to the FSA.
On the feedback which IMLA saw, executive director of the trade body, Peter Williams, said:
“All 21 IMLA members have provided their input to the IMLA response to the MMR consultation, this includes comments from a discussion at a recent executive committee meeting.
“Broadly IMLA's position on the MMR is that the proposals tabled are generally very sensible but there is still a lot of detail and clarity needed for the final policy and rules.
“The principle issue is registration of advisers, this needs to be done as soon as possible but another key weakness is that both the description of services and opt-out procedures run the risk of not being fully understood by consumers."
A spokeswoman at the CML said that the consultation period had been a crucial time for the whole industry.
She said: “We have enjoyed great engagement with our members over the last three and a half months, which reflects the importance of the proposals to our members.”
Paul Smee, director general at the CML, said: "After four consultation papers, the FSA has demonstrated a welcome ability to listen. It needs to continue to do so as we progress towards implementation of some very dramatic regulatory changes.
“It will be important for the FSA to continue to flex if it becomes clear that the new framework will cause too much risk aversion in a market that needs to be able to serve the whole diverse range of creditworthy customers, not just those with the most straightforward circumstances."
Similarly, Paul Broadhead, Head of Mortgage Policy at the BSA, said: “Since the final consultation was published just before Christmas the BSA has had considerable input from members, which coming from practitioners has been very useful.
“Altogether we held five roundtables up and down the country to gather views - our response to the consultation was submitted today."
As well as trade bodies, individual firms have also prepared for their submissions to the final round of consultation for the MMR.
John Charcol’s senior technical director, Ray Boulger said that when it came up to drawing up its response, John Charcol had taken in pragmatic feedback from its consultants.
Boulger said: “Our consultants provided feedback on their experiences in the market to their various managers. This information was then fed upwards and the work was then fronted up by our compliance department.
“They produced our submission which is a very detailed document which weighs in at a hefty 30 pages or so.”
The latest round of proposals has already had a significant impact on the mortgage market. Since the last consultation paper lenders have recently been tightening their interest-only criteria.
Under the proposed interest-only rules, a lender must assess affordability on a capital and interest basis unless there was a clearly understood and believable alternative source of capital repayment.
This has led to lenders cutting back on their interest-only loan to value caps and criteria of acceptable repayment vehicles.
A great concern for MPs during a Treasury Select Committee hearing on the MMR review was that these changes would set up an “interest-only time bomb” as hundreds of thousands of interest-only borrowers would be placed in a position where they could not get re-financing.
In response to lenders clamping down on their interest-only criteria, Boulger said: “I find it surprising lenders have done what they’ve done because the current version of the MMR is much less onerous than it previously was.
“Now lenders only need to check the repayment vehicle once throughout the lifetime of the mortgage whereas before, lenders had to check the repayment vehicle several times throughout the entire lifetime of the loan.
“It would’ve seemed logical to me to have waited after all the responses were put into consultation and the final version of the MMR was available because even then they would have still had bags of time to make the changes, so we should question their reasons for doing what they’ve done so early.”
Also within the latest MMR was the proposal to scrap non-advised sales. The paper said: “For some time we have had a concern about consumers’ lack of understanding about the difference between advised and non-advised sales.
“Our research shows that consumers do not recognise or even value the distinction and therefore may not appreciate the different regulatory standards applying between the two.
“Most consumers believe that if they speak to an intermediary, they have been given ‘advice’ no matter how many times they may be told that they are not being given advice and whatever form of service disclosure they are given confirming the position.”
One of the main areas which the CML called for clarification in its submission included the definition of advice.
The requirement to give advice whenever there was “spoken or interactive dialogue” would drag into an advice process many borrowers who did not want or need.
It also said that the proposed rules seemed to be based on the presumption that advice is face-to-face, whereas in fact it was developing increasingly into telephone and internet channels.
In its submission response to the FSA, the CML suggested the regulator needed to:
Encourage borrowers were encouraged to receive advice but could opt for execution-only if they wanted to but require that borrowers that customers in the four higher-risk borrowing groups should not be able to opt out of advice.
These groups include equity release, sale and rent back, right to buy and debt consolidation.
Key to ensuring mortgage advice sales are advised is individual registration however the latest consultation paper still did not provide any date for implementation and since, the FSA has said the move has been postponed indefinitely.
The proposal would have seen all intermediaries, including bank based advisers, telephone and internet mortgage sales staff, register with the FSA.
The CML has also suggested that the advice proposals only capture those customer contact activities that would be undertaken by approved persons.
Concerning niche sectors of the market such as equity release, home purchase plans and high net worth lending etc, the FSA said it wanted to achieve the same broad outcomes for niche consumers as for conventional mortgage customers.
It therefore proposed a straight “read across” of the majority of its proposals, affordability checks, income verification etc.
All branches of equity release were also to be unified under a single definition of equity release. Under the new standards, all equity release sales would have to go through an advised sales process.
Understanding however that high net worth individuals needed less protection, individuals would be given special dispensation to waive affordability rules. This particularly impacts interest-only loans in particular.
In relation to home finance, high net worth would be defined as a consumer with a gross income of no less than £1m per year or net assets of no less than £3m.
Hugh Wade-Jones, managing director at Enness Private Clients, said: “We were happy with the last consultation paper that the FSA recognised that it would be appropriate to give sophisticated high net worth borrowers the ability to waive rules intended for mainstream consumers.
“More work however needs to be done and we felt that the FSA’s definition of high net worth borrower could do with more clarity. How is an individual’s income calculated? Often money may be tied up in businesses and it depends on how much an individual draws out in any one year.
“Also some regular consumers could be defined as high net worth if they bought a house which has experienced radical house price inflation in an area like Kensington & Chelsea. They’re grasp of financial structures may not be as comprehensive as a high earning banker’s.”
Wade-Jones proposed that the £1m income level be reduced to £500,000 per annum and that the value of assets exclude primary residential properties.
Another niche sector looked at was the bridging market. The latest MMR consultation paper flagged several areas of concern about the industry.
Among affordability worries and the appropriateness of recommending bridging to vulnerable borrowers, the FSA was concerned about bridging finance being offered as a last resort where mainstream finance was suitable.
The regulator also flagged the quality of lender underwriting practices both at the time the loan was advanced and where applicable, where the loan was extended and the extent to which regulated business was being reported inaccurately as non-regulated loans.
Ultimately the final rules are not due to be implemented until mid-2014 at the earliest by the Financial Conduct Authority which will be headed by Martin Wheatley.
