The FSA is now an "intrusive, intensive regulator" in the mortgage arena and this should be welcomed, the Council of Mortgage Lenders (CML) says.
But it adds if the FSA had "focused in the past on errant firms in the way it intends to in the future, some of the problems would have been avoided".
In a document outlining where it supports the FSA's actions, and ahead of submitting its response to the mortgage market review, the CML also says the regulator is now pursuing an "impressive, extensive and aggressive retail agenda" following what it calls the banking market problems.
It supports the establishment by the FSA of a conduct risk division, saying it will help firms understand more clearly the core problems the FSA has identified as risks in the business conduct of firms.
The CML says it also backs the enhanced stress-testing requirements imposed on firms - including requiring "risky" businesses to hold more capital - as well as its "more rigorous" approvals processes for senior management.
However, it adds the FSA faces significant challenges in the years to come, particularly in balancing the need for stringent regulation "with the reality the firms left [in the industry] largely did not make the mistakes of the past".
"We accept that some firms with high-risk strategies overlooked some of the basics of mortgage lending: effective credit underwriting and pricing for risk, and proper control of the application process," the CML says. "Those lenders were found out, and are now largely out of business."
It says change should be driven by "careful analysis and a clear understanding of the causes of consumer detriment".
"What no-one needs is regulation driven by political rhetoric," it says. "The FSA is therefore to be congratulated for not imposing limits on lending relative to property values or income, as some ill-informed commentators have suggested. There is also no case for a comprehensive re-write of the mortgage conduct of business rules."
It adds: "Once we had a mortgage market that was the envy of the world. It is not too late to restore it. And the mortgage market review can make a significant contribution by delivering regulatory reform that addresses the real market failings. But it also risks accentuating the unwelcome trends we have seen in the past few years."
Mortgage market review key proposals
- Imposing affordability tests for all mortgages and making lenders responsible for vetting borrowers' ability to pay
- Banning ‘self-cert' mortgages (proof of income will be required)
- Banning mortgage products that put borrowers at risk
- Banning arrears charges when a borrower is already repaying, and preventing mortgage providers from profiting when people are in arrears
- Requiring all mortgage advisers to be accountable to the FSA
- Calling for the FSA's scope to be extended to cover buy-to-let and all lending secured on a home
The FSA is seeking comment from industry and consumer groups until 30 January. A feedback statement will be published in March. Any changes as a result of the review will be phased in from April 2010. Click here to read the paper and comment.
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