Hot Topics

• New MMR Section on TCFInfo
• FSA releases MMR Consultation Paper
• FSA will take collective intermediary feedback via www.tcfinfo.co.uk
• FSA feedback on product intervention reveals plans to turn TCF principles into rules
• Latest research results show that intermediaries need more help to engage with FSA on new regulation
• FSA Distribution and Disclosure Paper 
• Working together – an industry guide on lender and intermediary accountabilities and responsibilities in mortgage sales and servicing

New MMR Section on TCFInfo

Following release for the FSA’s MMR consultation paper, we have worked with them to produce some easy-to-read 1 page summaries on their key proposals that will most affect mortgage intermediaries. These include:

• Distribution and disclosure - proposals that will affect the mortgage sales process, the role of intermediaries and disclosure of information for consumers.
• Responsible lending - proposals that will affect lending decisions and interest-only mortgages
• Niche Markets  - proposals that will affect equity release, home purchase plans, sale and rent back, bridging finance and high net worth (HNW) and business lending
• New MMR Section

FSA roadshows for intermediaries in January and February

The new content also include details of a series of roadshows specifically for mortgage intermediaries, lenders’ sales staff and sales managers which are taking place in January and February. The delegate fee is £20 and spaces are limited.

Dates and locations
Tuesday 17 January (09:15 - 13:00) Bristol Marriott Royal Hotel, BS1
Thursday 19 January (09:15 - 13:00) Stormont Hotel, Belfast, BT4
Tuesday 24 January (09:15 - 13:00) De Vere Village Hotel Solihull, B90
Thursday 26 January (13:15 - 17:00) De Vere Village Hotel South Leeds, LS27
Tuesday 31 January (09:15 - 13:00) De Vere Grand Harbour Hotel, Southampton, SO15
Thursday 2 February (09:15 - 13:00) Inchyra Grange Hotel, Falkirk, FK2
Tuesday 7 February (09:15 - 13:00) Financial Services Authority, London, E14

FSA roadshow booking form

FSA releases MMR Consultation Paper

The Financial Services Authority (FSA) has releases it’s long-awaited MMR consultation paper which aims to prevent a return of the risky mortgage lending seen in boom times, by ensuring that common sense standards continue to apply in future.

Core proposals

At the core of the proposals are three principles of good mortgage underwriting:

• Mortgages and loans should only be advanced where there is a reasonable expectation that the customer can repay without relying on uncertain future house price rises. Lenders should assess affordability;
• This affordability assessment should allow for the possibility that interest rates might rise in future: borrowers should not enter contracts which are only affordable on the assumption that low initial interest rates will last forever;
• Interest-only mortgages should be assessed on a repayment basis unless there is a believable strategy for repaying out of capital resources that does not rely on the assumption that house prices will rise.
• The FSA believes it is important to have the rules well established long before any future upturns in the economy.

Key features

Key features of the proposed future regime include:

• Income will have to be verified in every mortgage application;
• Lenders do not have to consider in detail what borrowers spend but cannot ignore unavoidable bills, such as heating and council tax;
• Interest-only mortgages can still be offered as long as borrowers have a credible plan to repay the capital. But relying on hopes of rising property values is not enough;
• Lenders will have to consider the impact of increases in interest rates in line with current market expectations;
• Some applicants, such as those trying to consolidate debts with a mortgage, will have to get advice to ensure they understand the full implications and costs;
• Existing borrowers will be unaffected and lenders will have the flexibility to provide new mortgages to some existing customers even where they do not meet the new affordability requirements.

In January we will start a series of questionnaires to give intermediaries the opportunity to give direct feedback to the FSA on their proposals. This will be your opportunity to help shape our industry for the future so make sure you join the debate and have your say.

Register to 'Join the debate' and receive FREE updates and surveys
Read full FSA report

FSA will take collective intermediary feedback via tcf-info.co.uk

Following your feedback in TCFInfo’s last survey, the FSA has confirmed it will take collective intermediary feedback via www.tcfinfo.co.uk as part of their consultation process. The recent research gives further insight into mortgage brokers’ reluctance to engage with the FSA on their consultation process with 72% of brokers saying they think the FSA were not interested in their views.

Interestingly 61% of respondents thought that the MMR would cause some detriment to the market but didn’t think that they could do anything about it. Respondents also had some harsh words for the FSA including:

“Lack of understanding by the FSA of the issues facing customers means many of their proposals are ill-considered and will positively harm the prospects of many individuals that already have mortgages - not to mention the access to mortgages for new borrowers”.

However there are encouraging signs that the FSA wants to change this perception, when contacted, an FSA spokesperson said. “Mortgage intermediaries play an important role in ensuring there is choice and diversity for consumers in the mortgage market. The FSA welcomes comments from all firms when we consult on our policies. It is vital we get as many views as possible, from as wide a range of firms as possible. If you wish to respond to us via organisations like TCFInfo, you should feel encouraged to do so as we will take on board these views.”

Register to 'Join the debate' and receive FREE updates and surveys
Read full survey results (PDF)

FSA feedback on product intervention reveals plans to turn TCF principles into rules

In January 2011, the FSA published a discussion paper (see Daily News 26 January 2011) which proposed a new direction for retail financial services regulation, moving away from an approach mainly focused on point-of-sale, to one that regulates all aspects of the product life cycle (including the design, development and management of products).

The FSA has now published its feedback statement (FS11/3) on the discussion paper. The main points arising from the feedback received include:

• Product intervention. The FSA believes that a product intervention approach is an essential means of achieving an appropriate level of consumer protection.
• Market failure analysis. The FSA considers that its market failure analysis is a sound analysis of the problems that arise in financial services markets. It maintains that products can be designed to take advantage of consumer behaviour in ways that are contrary to their interests and that consumers are unable to exert competitive pressure on firms to support their interests.
• EU context. The FSA stated that, whilst developing its approach, it would take into account concerns raised around (i) the competitive position of UK firms if UK regulation takes a more interventionist, product-based approach than other EU Member States; and (ii) whether product intervention is better pursued at an EU level.
• Supervision. The FSA stated that its supervisory approach is still in development and that it will take the discussion paper responses into consideration while it continues to refine it.
• Development of the regulatory framework. The FSA is of the opinion that its new supervisory focus on products should be supported by a single set of rules and guidance on product governance.

Link to Newsletter and Feedback Statement

Research from www.tcfinfo.co.uk shows that intermediaries need more help to engage with FSA on new regulation

Latest research from www.tcfinfo.co.uk, taken just before the closing date for responses to the FSA’s latest proposals on Distribution and Disclosure, showed that 92.47% of intermediaries had not responded to the FSA or a trade body and 60.27% had no plans to do so.

The online research, involving 159 participants is a real indication that intermediaries are not engaging in the regulatory debate. As a result www.tcfinfo.co.uk is embarking on a campaign to encourage intermediaries to register on the site and “Join the debate”. Through the site’s regular updates and associated blog, we will run a series of online questionnaires on proposed regulatory changes and the results will be seen by the CML and through their involvement in the TCF Lender Forum.

The results also showed that there is a real need for intermediaries to be kept updated on regulatory change in a clear and concise way. Only 10.69% of participants were ‘very confident’ in their knowledge of MMR. Therefore www.tcfinfo.co.uk intends to build on its strong track record of providing intermediaries with information in ‘plain English’ to provide summaries of the FSA’s Discussion and Consultation papers to bring them fully up to speed on the regulatory debate.

Thank you to everyone who took part in the survey, Simon Shefford, Proprietor of Northants Mortgages was chosen at random from all the respondents to win the competition prize of an Ipod nano.

Register to 'Join the debate' and receive FREE updates and surveys
Read full survey results (PDF)
Read Robert Sinclair, Director of the Association of Mortgage Intermediaries, guest blog
Read full press release on survey results

FSA Distribution and Disclosure Paper – responses required by February 25th 2011

The Financial Services Authority (FSA) recently outlined proposals which focus on the mortgage sales process, the role of intermediaries and disclosure of information for customers. A key element is requiring that those selling mortgages ensure that each one sold is ‘appropriate’ for the customer’s needs and circumstances, therefore clarifying the role of the mortgage seller (both intermediary and branch based).

The changes the FSA is proposing include:

Distribution

• Removing any specific regulatory requirement on mortgage intermediaries to assess affordability;
• Requiring mortgage intermediaries to assess in every sale whether a product is appropriate to the customers needs and circumstances;
• Requiring that all mortgage intermediaries hold a mortgage qualification and work to appropriate professional standards; and
• Strengthening the sales standards. In particular, they are proposing that:
  - firms assess whether it is appropriate for a borrower to take out a mortgage beyond their planned retirement age;
  - firms explore with consumers whether it is appropriate for them to take a further advance on their existing mortgage rather than remortgage and incur all the attendant costs; and
  - firms explore whether it is appropriate for a consumer to roll-up their mortgage fees and charges into their loan.

Disclosure

• Replacing the requirement for an Initial Disclosure Document with a requirement to disclose key information on remuneration and scope of service early in the process;
• Replacing the existing complicated scope of service labels with the much simpler approach set out in the Retail Distribution Review  – i.e. using ‘independent’ and ‘restricted’;
• Removing the requirement for an independent firm to provide consumers with a fee option;
• Removing the requirement for firms to provide a Key Facts Illustration where they are putting forward a direct-only deal; and
• Changing the trigger points for a Key Facts Illustration to minimise information overload when consumers are considering multiple products.

Working together – an industry guide on lender and intermediary accountabilities and responsibilities in mortgage sales and servicing

A new industry guide, jointly published today by the Association of Mortgage Intermediaries (AMI), the Council of Mortgage Lenders (CML) and the Intermediary Mortgage Lenders Association (IMLA), brings greater clarity and transparency on how lenders and intermediaries work together on mortgage sales and administration.

Although much of what is in the guide is already in practice in the industry, the guide gives everyone - intermediaries and lenders - a shared understanding and clear description of what should be done.

The guide will be useful underpinning for market confidence, and should help consumers and policymakers, as well as the industry. With the FSA turning its attention to proposals on distribution and advice in November, the industry sees the guide as an important marker and clear evidence that common, high quality working standards can be achieved through productive collaboration between the lending and intermediary sectors.

• Working together - lenders and intermediaries