Mortgage Lenders AssociationAssociation of Mortgage Lenders
the Society Association und den Intermediary Mortgage Lenders.
Mortgage Lenders Association
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DFA responds to the promise of mortgage lenders to help long-term borrower.
Our Interim Report on the Mortgage Market Study considers whether and how we can allow clients with an acting borrower to move to a better business in certain conditions, even if this could be done through a discretionary arrangement. It is a welcome move by UK Finance, the Building Society Association and the Intermediary Mortgage Lenders Association to address this issue.
There will be close cooperation with business to consider the details of this Memorandum of Understanding and to oversee its implications. And we will work with the rest of the business to find a solution for those borrower who have a mortgage with an idle company and for those lenders who have not yet subscribed to the deal.
Lower House - Finance Committee
There is concern in the sector that although the regulations allow the use of judgment, in reality oversight will restrict this and the sector will take a cautious approach. The IMLA believes that the effects of MMR will be greater than indicated and that, together with other regulatory changes related to Basel, the EU and the Bank of England, we will have a much more restrictive mortgage markets in volume, price and access.
The IMLA fears that this will lead to a much more limited residential property supply with far-reaching implications for the household and the business community. IMAL (Intermediary Mortgage Lenders Association) is pleased to have this occasion to provide the Committee with documentation for its upcoming mortgage review consultation. Founded in 1988, IMLA is a long-standing mortgage trading organisation that represents lenders who sell their product through the intermediate broker markets.
The IMLA has 21 members, among them banking institutions, home loan and savings associations and special lenders, which together cover around 80% of the overall banking sector. It is the most important route to the mortgage brokerage system and accounts for around 50% of the mortgage portfolio. In some special niche stores, the share of broker sale is significantly higher, e.g. Buy to Let, where broker sale exceeds 90% of the overall marke.
Members are familiar with the fact that mortgage market analysis is only one of the changes that will affect the system and mortgage credit. Basle III, which revises the overall regulatory framework for banking and home loan and savings institutions and establishes new supervisory standards; the UK Financial Policy Committee is currently discussing new macroeconomic control measures.
FSA has been listening to the sector and found a reasonable equilibrium between the need for stricter regulation and the need to ensure that we continue to have a dynamic, highly competetive and innovating mortgage markets that meet consumers' needs. There has been a good consultative relationship with business and IMLA has found that the FSA is very committed.
Below we work quickly through the key areas of the document, but a general point to make is that given the responsibilities that is transferred to the creditor in the MMR, we believe that in general lenders will choose a more conservative stance for the decisions they are presented in the CP. While the FSA does not prescribe how lenders should do this, the review requires that lenders look for unbiased proofs.
It can be done on the basis of hard copy or via an automatic system such as the one pilot operated with HMRC. However, the creditor remains accountable for adherence to the regulations. Issues raised by the sector are how this will work in practise and whether the political intention will be mirrored in the regulatory position.
FSA has reviewed and mitigated its policy here so that lenders can choose a risk-based model so that there will be a greater need to make sure that pensions earnings are appropriate the nearer the potential borrowers are to pensionable ages. Now the FSA will not demand that lenders predict pensions if it is a few years in the past.
Creditors are reckoned to consider in their evaluation any future changes in the borrower's earnings of which they are or reasonably should be aware on the date of filing the claim. While the FSA has not used the concept of a freely available source of remuneration proposed in the initial CP, lenders must take into consideration the applicant's expenses when evaluating mortgage claims.
It now requires lenders to take into consideration all "tied expenditure", core essentials and core cost of life. It still seems to be an area where there can be significant disagreements and where lenders are likely to be mistaken on the side of prudence. When assessing expenditures, lenders may use either information provided by the claimant or information from a Statistical Modelling Notice.
Lenders will be exposed to the risks of being subject to sanctions in the event of a retroactive examination of the measures taken by the regulators. In retrospect, it is easily criticised, and lenders are likely to want to protect themselves against it, although this may have a detrimental effect on consumers.
Lenders, when evaluating affordable mortgages, must highlight future mortgage costs based on interest bearing information from the markets. Lenders must look five years into the future and use unbiased and reliable benchmarks such as the Forward Sterning Ratings posted on the Bank of England website and must not fix a stressed interest of less than 1%.
Creditors are now no longer obliged to evaluate the full 25 year life cost of the CP. Creditors are obliged to evaluate the affordable nature of "interest only" mortgage loans on a principal and interest redemption footing, unless there is proof that the debtor has a "robust" instrument to ensure redemption.
Before concluding the credit, the creditor is obliged to provide proof of the reimbursement instrument and is likely to verify the service or continuity of the car during the term of the credit. It is necessary to establish the lender's guideline for interest rate mortgage loans at management committee stage.
Even if the request for a formally issued IDD is deleted, companies will still have to make an initial oral or "durable" public statement, providing a clear, equitable and non-deceptive account of their services. While the FSA has acknowledged that it will be publishing its TPA proposal at a later date, we recognise that they plan to demand that buyers of regulatory mortgage securities are self-regulated entities.
Essentially, the aim of the proposed regulation is to impose risk-based funding on the basis of the standardized BIPRU 3 venture capitals. Non-bank regulatory entities have to meet operating rate limits and non-negotiated mortgage asset classes need 1% regulatory equity. As a result, the regulatory minimum required for the implementation of mortgage credit is up to 80% LTV 2.8% (8% regulatory minimum x 35% credit exposure).
It will not be possible to take the Internal Ratings Basis available to banking and bausparkassen, which would lead to a substantial decrease in the need for equity, and the sector would challenge the equity of this attitude. The proposal is that the new provisions should not have retroactive effect and should only be applicable to non-banks operating in the field of first contract award.
In BIPRU 9, the provisions on Securitisation also exist, which means that if the conditions are fulfilled and there is evidence of a significant transfer of risks, financial instruments may be removed from the accounts for financial reasons so that only the interest withheld is considered a risk-weighted asset and the amount of required funds is limited to the levels that would otherwise be required for the underlyings.
Securitisation non-banks are also reckoned to comply with the 5% threshold already set by the investor under CRD Article 122a. There is a need to hold at least 20% of the principal in the shape of own funds and a high quality need for cash focused on the maintenance of appropriate cash flow management and control arrangements.
MIPRU 4 will include the new regulations, but with regard to BIPRU 3 and 9, and will only cover companies that are subject to regulation. FSA draws attention to the evolution of the EU Mortgage Policy Guidelines and finds that they generally follow an overarching principles-based stance, which for the most part does not contradict these suggestions.
Borrower can stay on current conditions, although the sector fears that it will be very hard for them to switch between lenders. However, it is clearly still premised on a number of hypotheses, and we would wonder whether the effect of the proposed measures on effective credit will be restricted, as proposed by the CP, and the information used may be inadequate to provide sound ratings The FSA observes that it has been exceptionally challenging to get the CBA ready (A1.2:4) and that there is a great deal of room for manoeuvre in respect of uncertainties about the results.
With regard to accountable credit, the CP states in A1.3:6 that "it will be highly challenging to determine exactly how accountable credit standards will evolve in the marketplace or to their likely extent" and that the FSA "has made some valuation assumption based on incomplete evidence".
In our view, instinctive rather than explicit CBA, the combined effect of more sophisticated supervisory regulations requiring banks to raise much more funds (to make them safer) and a regulator's stance that gives priority to protecting customers over choosing customers (to prevent customers from harming themselves by making the right choices) means that mortgage provision will be much more constrained in the future than it has been for the past 25 years.
The mortgage offering is becoming narrower and mortgage prices more costly. So we need to redefine who we think can obtain a mortgage and what kind of residential property we will have. Here, governments, regulators as well as industries must come together and reach agreement on a way forward.
HM Treasury's Home Finance Forum, where lenders and governments regularly gather, could not debate mortgage financing and its implications, and the recent UK House Policy Statement was rather brief to give an outlook on the form of living in England in the near term.
In combination with the long-term effects of the global economic downturn, the scarcity of residential space and the structural high price of houses, we believe that the current situation for young residents is somewhat worse. Purchasing a home at any time in their lives may not be a viable choice for a higher share of this group than since World War II, and if this is true, it naturally has a greater effect on the overall property value.
MMR cannot be considered in isolation as it is one of a number of actions that affect the markets and the sector. Conservative reactions from industries to the MMR proposals will be required as, although there will be room for manoeuvre, choices will have to be reasoned. There will be more trust in the regulatory framework and attitude over the course of the years, but there is likely to be a long transitional period where the markets become narrower than the CBA proposes.
IMLA fears that the impact of this new economy could over the course of history become a major cause of dissatisfaction and disparity. As a result, policy measures will be triggered and there is a danger that industries will be pushed into new ways of granting credit. It would be useful, if considered appropriate, to make this clear so that the sector is not trapped between different items.