Meet your MMR strawman

On 19 December 2011, the FSA published a mortgage market review consultation paper and draft rules (CP 11/31) and supplementary data pack, launching the next and, hopefully, final stage of its long review process.

As the release was headed, the FSA wants to put “common sense at the heart of mortgage lending”. Eminently sensible, and some might suggest unnecessary to articulate (and certainly it is not a quick read at over 750 pages). It should be obvious to firms as well as the regulator but, sadly, some firms’ over-exuberance damaged both them, their market and the consumers they serve.

The scale of the review reflects that, at the margins, some lending by some lenders, arranged by some mortgage intermediaries, was too risky (and, in some cases, was fraudulent) in the boom times. However, we should not forget that some of the market and commercial failures, in particular firms, that we have seen have also been caused by a failure of regulation and ineffective supervision, as well as by failures of senior management and boards. The new Financial Conduct Authority will have to avoid repeating past mistakes, and the MMR has been an early example of how regulating “conduct risk” might work.

As with any new approach, there has been a degree of learning by doing. This has meant that the past debate on future mortgage regulation has become more heated at times (in the latter part of 2010) than might be expected in a regulatory consultation exercise. In public comments I made at the time, when I was still at the CML, I emphasised that I was putting a spotlight on the FSA’s actions, from which heat was a by-product, not the main purpose.

Success

If the new MMR rules are to succeed, where the current regulatory framework is perceived to have failed, there will be an equal responsibility on the FCA, as well as firms, to act with sensibility.

The good news, however, is that the lack of sensibility by the regulator, reflected in the previous responsible lending proposals in early 2010, has been removed.

I think this is a success borne from the CML’s hearts and minds campaign in 2010, backed by its comprehensive and evidence-based submissions (and substantial consumer research). Among others, the housing minister, Grant Shapps MP, the then director general of the Confederation of British Industry, Sir Richard Lambert; and the Consumer Panel expressed concerns about the MMR and the lack of proportionality in the FSA’s initial approach.

The FSA may have felt the heat over 2010/2011, but the CML’s light on the actual market data, trends and causes of consumer detriment, has led the FSA to review its approach, carry out a more comprehensive cost/benefit analysis of the data than initially, and re-position itself in a number of crucial areas as a consequence.