Frank Eve is director of Frank Eve Consulting
The Mortgage Market Review (MMR) CP11/31 has now been released and gives final feedback on the consultation process and the final rules.
At first glance mortgage brokers should be pleased with the outcome. Although the FSA has not gone as far as some would like in terms of where the cut-off point between ‘advised sales’ and ‘information provision’ is concerned, mortgage brokers are now in the driving seat when it comes to the provision of advice in a sales situation.
Lenders can, with immediate effect, ‘switch off’ the affordability and interest-only requirements for existing borrowers who want a new mortgage for the same amount or less. While any lending decision is a commercial one, lenders will also be able to use these arrangements to take on customers of other lenders.
Lenders will be prevented from treating existing customers less favourably than other customers.
This could mean a real opportunity for brokers to assist borrowers trapped with their current lender without the borrower having their income verified by the lender but the focus will be very much on the fair treatment of the customer.
Overall the rules are a great deal better than could have been expected at the outset of the exercise but we have yet to see the MMR implemented and it will be a new regulator that implements and monitors the new rules.
The MMR has to be viewed alongside the new regulatory approach of the Financial Conduct Authority (FCA).
The FCA will take over from the FSA in 2013 and Martin Wheatley the new Chief Executive- Designate in laying out the new approach and objectives said “We will step in earlier and act faster, when we identify problems that risk harming consumers or the integrity of the market”.
The FCA will intervene in the market if they find any detriment to the consumer and are committed to bringing more enforcement cases and pressing for tough penalties for infringement of rules.
The FCA has indicated in their document ‘Journey to the FCA’ that their new approach will be underpinned by judgement-based supervision.
This means that they will be making supervisory judgements about a firm’s business model, their culture, and how they run their business, on a foundation of fair treatment of customers as set out in the Treating Customers Fairly (TCF) initiative.
The MMR may be a velvet glove but the FCA is the iron hand inside and TCF will be the instrument that the FCA will use to judge the actions of mortgage brokers and lenders.
In the MMR both brokers and lenders will have enough licence to interpret the rules in various ways but they need to be mindful of the ‘Fair Treatment of the Customer’ or they will find that the FCA has given them only enough rope to hang themselves on.
The TCF initiative is still very much relevant and now forms the basis of the FCA’s judgement based regulation, brokers and lenders should make sure they still have TCF embedded in all their procedures and remember that the regulator will be making judgements based on the fair treatment of their customers.