FSA Says Large Lenders Oppose “Liar Loan” Ban
Financial Services Authority
The Financial Services Authority (FSA) had said in October it planned to force mortgage lenders to check the income of all borrowers, effectively banning self-certified mortgages.
Such loans became known as liar loans after they were widely abused during the housing bubble and were blamed for helping fuel bad debt problems at the heart of the financial crisis.
But the watchdog said in a feedback statement Tuesday that unnamed “large lenders” had opposed the proposal.
“Objections were raised mainly by large lenders, who argued that the proposals would impact negatively on the self-employed, which will trigger an increased usage of fraudulent income documentation,” the watchdog said, adding some said it would also increase administrative costs.
“Those that supported the proposal argued everyone should be able to verify income, even if the income sources are diverse or the income streams irregular,” the FSA said, adding its proposals were supported by consumer bodies, small lenders and intermediaries.
At the height of the housing boom in July 2007, self-cert loans accounted for 23 percent of Britain’s prime residential home loans, though they are now provided by just one lender.
Most respondents to the FSA’s proposals also argued against a blanket ban on the sale of products with high-risk characteristics, with lenders saying “toxic” lending was only undertaken by a minority of providers who have since pulled out of the market.
The FSA had stopped short in October of capping loan-to-property price ratios that could have banned mortgages such as the 125 percent loan offered by Northern Rock before its near-collapse.
Following October’s mortgage market review, the FSA has already published a consultation paper on issues including arrears and plans a policy statement for June.
It will look again at affordability and income verification — including the issue of self-cert mortgages — in the third quarter