A tad silly

The FSA\’s Mortgage Market Review is expected call for an end to self-certification mortgages, which were granted without proof of income.

I can understand why few people would want to grant one, sure. I cxan understand why people might be leery of them.

But to ban them? To say \”no, you may not lend your money as you wish\”?

A little de trop, no?

For example, I remortgaged a few years back. Had to be self certifying as I was (and am) self-employed with variable income from a number of different sources. I was limited to 60% of the value of the property.

I can\’t really see that such a mortgage should be banned on any grounds at all.

20 comments on “A tad silly

  1. It’s an outrage. I’m on a self-cert for 40%, formuch the same reasons as yourself. They practically tore my arm off to lend, I wanted the deal – what the hell business is it of the government’s FSA poodle?

    It is only because the governments bailed out the banks that they feel the need or the ability to interfere with basic market decisions like this. What’s next? They’re only allowed to lend to public sector workers?

    More and more like Atlas Shrugged every day…

  2. “I wanted the deal – what the hell business is it of the government’s FSA poodle?”

    Mortgage lending became a bubble of irrationality. Everyone knew it, too, but the few deranged lenders can screw it for everyone.

    Do a thought experiment with me. Imagine you’re the CEO of a small mortgage bank. Out there is Northern Rock doing silly mortgages on silly rates. What do you do? You know they are silly but the only question is: Match them or not? If you don’t match, you lose business. Lots of business.

    You’ll have to downsize or even shut sown your mortgage division. And what will happen? You’ll get fired by the board for being the only CEO to close his mortgage business in a boom! You’ll be a laughing stock. They will call you Dr. Doom.

    As Tim says, incentives matter. So you go with the herd, wishing that someone had stepped in to stop the nonsense, to say that the Emperor has no clothes.

    In an ordinary industry it’s important to burn fingers every 25 years or so: pour encourager the next generation. But shutting down the ATM network burns more than fingers. Consequently there is a collective public interest in the stability of the basic banking system. For this reason the FSA can tell your bank and you, who otherwise would agree to loan you money, that they should not.

    None of the above us to support the FSA we actually have: they utterly failed to do their job, are overreacting at a time when there isn’t a problem any more, and their proposals will do more damage than good. They should gave done this 5 years ago, or in 10 years from now: countercyclic, not cycle-reinforcing.

  3. Just to add to the above point, we’ve seen the same thing before: the 3G licence auction. I asked a senior mobile phone exec at the time why they were paying money they’d never see again, and he said to me “we can’t pull out: if we did we’d be seen as not a player in mobile and we’d lose all credibility”. Of course, silly money for 3G doesn’t put the entire economy at risk, so there is no genuine public interest. But it illustrates the pressures to conform that management come under.

  4. Without self certification mortgages, how do the self employed buy houses?

    We all know that the market went crazy and lenders felf forced to overstretch, but there is a major cost to each of the ideas being floated entails.

    Forcing lenders to live within their means, makes far better sense than dictating to them who they should lend money to.

    In fact rules forcing lenders to lend to high risk borrowers in the US, we one little piece of the jigsaw puzzle that caused this mess in the first place.

  5. Oh Timmy, we can’t have all these NASTY self-employed people having mortgages and houses, can we? After all, they are not dependant on the State and are therefore hard to control.

    Besides, they are all tax-dodgers; doesn’t that nice Mr Murphy say so?

  6. Do a thought experiment with me.

    Do a little on for me too would you Kay Tie? Imagine banks with idiotic lending policies had been allowed to fail, rather than being propped up with taxpayers money – would a lesson have been learned? as it is, what lesson have the banks learned now?

    The self cert deal I had/have was entirely rational – it’s on only 40% of market value; I think the same deal was available up to 70%. Why should a bank that takes care to pick customers be penalised to slap those that lend excessively? This is all kerazy. A command economy for mortgages…

    Oh god I wish my missus would let us emigrate…

  7. “Do a little on for me too would you Kay Tie? Imagine banks with idiotic lending policies had been allowed to fail, rather than being propped up with taxpayers money – would a lesson have been learned? as it is, what lesson have the banks learned now?”

    OK. So when the cash machines shut down and the credit card networks stopped, you’d be there at the supermarket food riot saying “but we have to avoid moral hazard!”

    Yes, they shouldn’t have got too big too fail. But they did. It’s no use saying “but they shouldn’t have” in the midst of the crisis, is it?

    “This is all kerazy. A command economy for mortgages…”

    I don’t disagree. But some kind of regulation is necessary: to stop banks getting too big in the first place, or to stop crazy lending pulling the whole system into craziness.

  8. Imagine banks with idiotic lending policies had been allowed to fail…

    I agree. Detailed regulation will not work and without the banks being allowed to fail, the same mistakes will be made again.

    But shutting down the ATM network burns more than fingers.

    Yes, there is a role for government here, but no, we should not save the entire bank. The underlying technology infrastructure needs to be protected against many risks and threats and the financial collapse of the parent bank should be another one banks are required to plan for. For example, money could be held in escrow to cover the costs of running the data centres for some suitable period of time. As a fallback option, the government could take them over in the short term.

  9. “Without self certification mortgages, how do the self employed buy houses?”

    Like I did at the end of the last housing crash. To endure patronising scum in bank after bank, until I found one willing to lend with a 25% deposit.

    You see, back then we didn’t need regulation to create a mortgage industry run by assholes.

  10. OK. So when the cash machines shut down and the credit card networks stopped, you’d be there at the supermarket food riot saying “but we have to avoid moral hazard!”

    Me? No. I’ve got two month’s supply of food and drink in the cellar. Doesn’t everybody?

    I see this story lead the One o clock news today – seems to me the govt have perhaps, as usual, forgotten their due diligence… Do they *really* think there will be no losers? Dummies.

  11. “Without self certification mortgages, how do the self employed buy houses?”

    The ideal way for anyone to buy a house is with cash. Most can’t do that and so we have to borrow money to buy houses because houses are very expensive. We then want the house to become even more expensive, so we don’t “lose” money and so that the bank doesn’t get worried about the mortgage they gave us. The bank gets worried if property prices fall because they didn’t really give us the mortgage on the basis of our character and future earning potential, but rather because they thought they can’t lose money lending against an object that is rising in value.

    The solution is to make houses vastly cheaper.

  12. “For example, money could be held in escrow to cover the costs of running the data centres for some suitable period of time.”

    That wasn’t the issue (well, not the Armageddon one, anyway).

    The reason the ATMs would have shut down was that the counterparties to the transactions were about to fail. If you remember, the money markets “broke the buck”. When that happens, the people who run the ATM worry they won’t get the money that you took out.

  13. When that happens, the people who run the ATM worry they won’t get the money that you took out.

    Would deposit insurance solve this? Perhaps the current system is too slow, and we would need the deposit insurance to be closer to real-time?

  14. 1/ The best way to deal with self cert is to insist on much higher reserves when lending to this pool.

    2/ Bank Bond collapses are extremely deflationary. The state could safely print money return to depositors, and administrate the assets of banks.

    Have a look at how the FDIC works in the states, banks have to have a one night account transfer in the event of bank failure, this seems like a sensible regulation.

  15. Surely self-employed people are always in a position to provide a record of payments coming into their personal bank accounts? I mean they only need to ascertain that you have a track record of sufficient revenue to cover your repayments don’t they?

    I just don’t understand why it should be more difficult for a self-employed person to get a mortgage.

  16. Monty:

    My guess is that it’s not one or the other (self-employed versus employed) but the total picture of stability and reliability of income, in which some self-employed could be quite as good or even better risks than employed, depending on length and type of employment.

    Lenders in the US usually resort to things like length of the situation, accounts receivable records, tax paymentsx (especially income tax),
    etc.

  17. Frank Fisher

    I was scrolling down to post my comment to the very same effect: some should be beating a retreat, “voting with their feet.” I’d say the same. As a matter of fact, I’d predict that, in the not-too-distant future, that leaving may not be an option. Or, you may have to pay to leave, or you may have to leave something of tangible value behind–money, property, etc. You’ll probably not be able to keep invested funds–they’ll have to be sold and all taxes due paid before an exit visa will be issued. Maybe even a residual tax that will (with the cooperation of their opposite numbers in your new home) have you pay not only your new masters but the old–for a few years anyway. “Why, we brought you up and nurtured you, didn’t we? Provided you with that fine education and life experiences enabling you to do as well as you do, huh?”

    I’m not kidding; that kind is the same in every place. It’s just the slow, haphazard, and entirely
    unfortunate way in which civilization has “progressed” in modern times that they don’t legally own you already–but I wouldn’t count on the luck holding out. The “nice” people who manage such things have nothing against you but the law is the law (and there are dissatisfied masses of the unwashed to be kept happy and non-violent).

  18. I’m glad i’m not the only one who is staggered by the u turn by the FSA. For 5 years whenever I complained to them about unfair practises or products I was informed that the FSA do not get involved with product terms and their competiteness. In essence, if lenders want to lend into higher risk markets then the interest rate or terms of the deal will reflect the risk. And now they want to ban a product that is both valid and vital !!!
    Yes to affordability, yes to making sure Brokers act professionally etc but this is now just madness !!

  19. So Kay Tie, if I read it right, your hypothesis goes: Because people can act stupidly, government must regulate to protect tem from that stupidity.

    The only problem I see with that (well, not the only problem, but one of the biggies) is that becasue human stupidity is so widespread and irrational, for your plan to work, government must regulate everything.

    Quite apart from that being a scary prospect, this conveniently forgets that government is made up of people just as prone to irrational stupidity as the rest of us. Ergo the very actions designed to protect us from our own stupidity are more than likely to be the products of stupidity themselves.

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