Tuesday, Oct 20, 2009

Further Analysis of the FSA Rules

Independent: A million frozen out of mortgage market

Experts criticised what they said was an "over-reaction" from the Financial Services Authority, saying that while there were abuses in the run-up to the credit crunch, the vast majority of such "self-certification" loans were legitimate. Even the FSA said it accepted that the mortgage market worked well for "95 per cent of consumers".

Posted by alan @ 09:30 AM (1346 views)
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1. mark wadsworth said...

All this ideas for detailed regulation are nonsense.

All you need to know is what's happening to house prices (if they go up faster than wages, that's a warning sign) and to look at how fast each individual bank is expanding (anything faster than 4% or 5% is a warning sign) as well as total mortgage indebtedness. Seeing as the government subsidises banks by guaranteeing deposits (using taxpayer as ultimate guarantor), it's only fair for the government on behalf of the taxpayer to expect banks who benefit from the subsidy to toe the line.

And to nail this down, there should be no bail-outs.

Sure, bail out the people with less than £50,000 on deposit (or whatever is politically necessary) but if banks lose money then they should be made to do debt-for-equity swaps - each bank just has to rank all its bonds in order of who gets swapped first and who gets swapped last (i.e. all these fancy phrases like "junior" and "senior" debt or "subordinated bonds" or "mezzanine finance" or "permanent interest bearing shares" just get given a numerical ranking). There is no need for new legislation or anything, we have bankruptcy laws that apply here (and the threat of bankruptcy alone is enough to focus banks' attention).

It is then mathematically almost impossible for savers to lose a penny, it's all about risk and reward, and "the markets" will sort out the balance by paying higher interest rates on bonds that are more likely to be swapped.

Tuesday, October 20, 2009 10:00AM Report Comment

2. estrader said...

Who are these "experts" and where were they 3 years ago?

"Often a small business person will take one out because in the time it takes them to prepare the accounts they need to prove their income they could lose a house."

What in the world does "lose a house" mean??? I could argue that in the time it takes me to prove my income I could lose a mansion. So future home loans will take into account how long it will take to prove your income?. Does this mean that employed people who can prove their income will be at a disandvantage because their 'provable' income might be lower than those who can't be bothered doing the paper work and overstate? This country is mad!

Tuesday, October 20, 2009 10:25AM Report Comment

3. greenmind said...

The fact that mortgage industry insiders are squeeling like stuck pigs proves its a good measure. These guys havent learnt a thing, their commission and bonuses are wrapped up with easy high risk finance and they dont like it when someone puts a stop to their party.

"Often a small business person will take one out because in the time it takes them to prepare the accounts they need to prove their income they could lose a house."

What about finding how much you can borrow before looking seriously looking at properties? A little bit of measured preparation is surley not too much to ask for a big decision like buying a house?

Tuesday, October 20, 2009 10:40AM Report Comment

4. house said...

With Self Assessment and deadlines to file tax returns means that most accounts would be prepared fairly quickly ie. if you are a good business who is keeping up with paperwork. This means that they would be able to arrange the finances well before they find a particular property. However this will stop people from borrowing more than they can afford. This is not a bad thing and people can then save more before they go aheadwith a purchase. It is good for everybody and then there should be a minimal amount of repossession. I agree with the earlier writers of what have been said.

Tuesday, October 20, 2009 10:48AM Report Comment

5. Jontomes said...

"Often a small business person will take one out because in the time it takes them to prepare the accounts they need to prove their income they could lose a house."

Ha ha ha. Talk about collective deceit on a massive scale. If liar loans had been limited to the self-employed there would have been no issues with our housing market. The obvious elephant sitting in your chair, smoking your pipe, is the fact that salaried employees were using liar loans simply so they could meet ludicrous asking prices. Not even the maddest banks at the height of the boom were prepared to openly loan 10-12x income to FBTs. Hence the need for the usage of self certs.

If you own a small business, you shouldn't even be thinking of buying a house until you're past the 3-years milestone (most go bust before then anyway). Once you've hit that you have three years filed accounts. What other preparation do you need to do to prove income? Just give the bank your company returns. Simples.

The only negative response to the FSAs weak and barn-door-bolted-horse fiddling is from VIs with an interest in the continuation of mass fraud and dishonesty. Which, face it, with prices still where they are, is just about everyone involved with the property market.

Tuesday, October 20, 2009 10:58AM Report Comment

6. mr g said...

@1 Agree 100% with your comments.

@2 "Who are these "experts" and where were they 3 years ago?"

I have asked the same question umpteen times. Inflation, unemployment, industrial output, interest rates, etc, etc ad nauseam. You name it, they get it wrong and get handsomely paid for doing so.

In Turner's words they are "socially useless", in my words they are simply parasites like estate agents and so called recruitment agents.

Tuesday, October 20, 2009 01:54PM Report Comment

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