Changes, whether they have been in regulation, oversight or in business practices are inevitable but, on the whole they have been positive and progressive. Enhancements in consumer protection and routes for redress are very good examples. However, we should always ask ourselves whether we have learnt from our past mistakes and made the right changes to ensure they don’t recur and that poor practises don’t come back into play.
It is interesting to reflect on how different the mortgage origination market is now compared to pre 2007/2008 and the global financial crisis.
The relationship between intermediaries, packagers, aggregators and lenders has changed fundamentally. Third parties used to carry out the majority of assessments on behalf of the lender prior to submission of the application. Now, that process has largely been abandoned, mainly to mitigate risk. However, the most important question to address is whether the lending decisions now being made are more responsible than they were before.
The incessant drive for volume business appears to have been replaced by a greater emphasis on quality supplemented by the deployment of superior risk assessment techniques. Funders are far more aware that inherent risks need to be identified at an earlier stage in the cycle. We are finding that reviews of the lending decisions made are now taking place far more regularly and much sooner following loan completion. We have seen this first hand and are very active in this market, undertaking a number of regular reviews for both originators and funders to ensure compliance to agreed standards.
Notwithstanding the above, The Financial Conduct Authority has recently published “The Responsible Lending Review” assessing how firms are applying new lending rules (introduced in April 2014) following the Mortgage Market Review. In general the report was very positive, but it still highlighted that a number of firms need to make “process improvements to help them consistently assess and record their lending decisions”. As mentioned above, previously once a loan had completed, reviews of decisions were often minimal. However, such reviews have now become a much more important tool in undertaking risk assessment. Furthermore, as the Senior Management Regime becomes embedded in firms, those techniques will help to demonstrate clear accountability – an area that proved problematic for previous regulatory enforcement.
Clearly the mortgage market is better regulated 10 years on, with more responsibility and accountability in place for both firms and individuals. We believe some weaknesses still exist and whilst they do, the processes must be maintained, monitored and independently reviewed. We need to continue to evolve positively and to show that we have learnt from those past mistakes.