Formal testing of the MMR process
In the same way that Mortgage Regulation Day in 2004 was not simply a one day wonder; the same will apply to the launch of MMR. This commentary is focused on how the FCA will assess the success or failure of the implementation of MMR and what areas will be under review in the next six months.
It is clear that the regulators emphasis will be on responsible lending, clear and appropriate sales advice in the application process and how customers who are in arrears are being treated. The FCA will also be looking at the consequences of tightening criteria in one area which could promote ‘gaming’ – the process by which a client, attempting to buy a property for residential occupancy purposes, applies for a buy-to-let mortgage to avoid the new affordability assessments. It is suggested that it could also review the use of second charges, where the affordability requirements are different, to ‘top up’ first charge lending.
So, the effect on lenders could be significant. There will be a greater need for audit trails to prove the considerations taken into account in the decision making process. There will be a greater need to audit customer service telephone calls and face to face conversations. Cross checking of customers’ income to ensure underwriting standards are consistent with affordability data, will also feature. Checks will need to be in place to ensure forbearance properly takes into account customers’ individual needs, based on their personal and financial circumstances.
In summary, the MMR is not there to stop people accessing finance for house purchase, as has been suggested by the media. After all, one of the biggest risks to lenders business models is not lending. It does, however, give lenders a number of challenges and places a large responsibility on them to have the right controls and processes in place and, as the FCA takes a more pro-active role in the market place, calls for them to evidence that.