Saturday, October 17, 2009

U.K.: FSA to Tighten up Mortgage Regulation, Ban Stated Income Loans

by Calculated Risk on 10/17/2009 10:12:00 PM

From the Telegraph: Era of cheap mortgages is over, British homeowners warned

[T]he Financial Services Authority ... plans to tighten up regulation and crack down on risky lending ...

The FSA's Mortgage Market Review, published tomorrow, will focus on the third of the market considered "higher risk". ... Among the report's proposals, the financial regulator is expected to call for an end to self-certification mortgages and rule that responsibility for income verification be transferred from mortgage brokers to lenders.
Second charge and buy-to-let mortgages, neither of which are regulated by the FSA, are expected to be brought under its supervision. In addition, sub-prime, interest-only, and 125pc mortgages will all be subjected to closer scrutiny and higher capital requirements.
The terms are different in the U.K.: "Self certification" is stated income, "second charge" is a second mortgage, and "buy-to-let" is a rental unit.

Subprime, interest only (IO) and 125 percent loan-to-value (LTV) are the same.

There is no purpose for self certification (stated income) loans and these should be banned everywhere. Self certification means "buyer underwritten" as opposed to "lender unwritten" - and that makes no sense. Tanta wrote a couple of great posts on this in 2007: Just Say No To Stated Income and What's Really Wrong With Stated Income .

About time ...