Speaking at the Treasury Select Committee today TSC member and Labour MP Pat McFAdden said: “You said the rules in the run up to the boom were being ignored but there were perfectly sensible rules in place.
“I’m slightly wondering what the point of all this [MMR] is if we had good rules already? Why aren’t those just enforced?”
Martin Wheatley, managing director of the conduct business unit at the FSA, told MPs that Mortgage Conduct of Business principles “should have meant that the excesses around the period of 2007 shouldn’t have happened”.
But he blamed the banks for moving away from the MCoB principles rather than taking responsibility for a lack of enforcement by the regulator.
He said: “It’s difficult for me to comment on the extent to which we fell down on the job or the banks move away from those principles.
“Frankly [the banks] forgot and moved away from what we would have considered proper income verification – they had a responsibility to assess affordability in the past and they didn’t do it.
“The fact is the rules in the past which did exist weren’t followed so we’re coming forward with some clearer rules that will protect consumers better in the future.”
McFadden also highlighted that Lord Adair Turner, chairman of the FSA, claimed the MMR wouldn’t have “very much impact” on the availability of mortgages for borrowers.
McFadden then went on the question: “What’s the point of a three year exercise if we’ve already got perfectly sensible rules in place, which if they’d been enforced would have avoided all this?”
Wheatley responded: “We had general principle of sound lending in place, they weren’t the rules we’re now proposing.
“We would have had powers to investigate – general principles by their nature are slightly more difficult to take enforcement action against.”
Meanwhile TSC member and Labour MP Teresa Pearce asked Wheatley whether he believed the MMR would mean the regulator would spot bad practice sooner this time around in order to prevent a repeat of those excesses.
Wheatley said: “I hope so.”
He said the supervisory team in the FSA had spent more time checking if rules were embedded into lenders’ processes.
But he added: “We cannot micromanage the banks and building societies that provide these services. A lot of it has to come from the governance within the firms...but we’ll certainly be doing more to check compliance in the future.”
