Speaking at the Council of Mortgage Lenders' Annual Conference, Jon Pain, the Financial Services Authority's (FSA) managing director of Supervision, said that arrears handling needed an urgent review. He also addressed some of the issues around affordability assessments that have been raised by the industry.
He said it is important to acknowledge that although the mortgage market worked well for many, it failed for a significant minority. Therefore, the priority must be to move towards a market that is flexible, sustainable for all and works for consumers.
He emphasised the FSA's new bolder approach to regulation, the importance of intensive supervision focused on outcomes, and its commitment to restore confidence in financial markets, to protect consumers and reduce financial crime.
He also sought to address some of the issues raised by the industry following the publication of the mortgage market review last month. Outlining the rationale for the review, the key points emphasised were:
* The FSA is not seeking to block access to the market through income verification measures; rather, it expects these to yield various benefits, including a reduction in the number of unaffordable and unsuitable mortgage transactions; a decrease in arrears and repossession rates; improved transparency; a reduction in mortgage fraud; and an improved confidence in, and therefore sustainability of, the market more generally;
* The FSA will work closely with firms to identify acceptable verification measures and best practice for affordability assessments;
* Affordability checks will not look to judge how individuals spend their money but it is essential for lenders to do an appropriate and proper assessment of a borrower's genuine ability to repay;
* It is not the FSA's intention to penalise 'non-banks' or to stifle competition but is looking to curb the particularly high-risk lending strategies that led to significantly higher mortgage arrears levels; and
* The issue of arrears need urgent attention and to this end, the FSA will consult in January 2010 on tightening its conduct of business rules on arrears handling.
Jon Pain concluded: "Just as a house requires solid foundations to be long lasting, mortgages need to be based on a proper assessment of affordability if we are to have a sustainable market. Everyone who takes out a mortgage should be able to repay it - they should have some evidence that they can repay it and lenders should take note of that evidence. We want lenders to get back to the basics of responsible lending and we will continue to push the industry where we find firms are not treating their customers fairly."
