Does the UK have a subprime mortgage time-bomb on the scale of the US? S&P has been among those to argue it does not, and that more conservative lending has made the UK less susceptible to the kind of shock experienced stateside.
The FSA though thinks otherwise.
The regulator on Wednesday published a damning review of the behaviour on lenders and intermediaries within the subprime mortgage market, covering 11 lenders and 34 intermediary firms.
It has now started enforcement action against five unidentified firms. The five are all mortgage brokers, rather than lenders, who have not shown adequate improvement since the FSA’s initial study of the market two years ago.
In the case of the lenders, the FSA found that “none of the [lending] policies adequately covered all relevant responsible lending considerations. There were gaps in both the overall coverage and the detail.”
Yes, that’s right NONE. No one is up to scratch. How reassuring. It goes on:
Many lenders are not always applying their lending policies in practice.
Dear god. So not only are the policies themselves inadequate – they’re not even being applied properly. We’re screwed. The failings include areas such as affordability, where models may be out of date, or information collected inadequate for assessment – and interest-only mortgages or mortgages into retirement where checks are lacking.
When it comes to self-cert mortgages, some lenders are apparently not asking why borrowers want to self-certify their income, undertaking additional checks to compensate for the moral hazard involved, or cross-checking information with employers or other third parties.
So they’re just in the business of writing cheques by the sounds of it.
Intermediaries also are failing, says the FSA. It found “no improvement” in practices since work was last undertaken in 2005. Areas of concern were in the demonstration of the suitability of the product recommendation, and record keeping in particular, it adds.
Nearly half the files reviewed in this project did not contain adequately documented \\’know your customer\\’ information. Fact find documents were inadequate or not sufficiently completed.
On affordability, the FSA added: “Affordability was not adequately assessed in over a third of the cases reviewed. We found particular weaknesses where the loans extended into retirement and around the self-certification of income.”
The watchdog says it is “very concerned.” So are we now.