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fsa mortgage discussion paper October 19, 2009

Posted by Bradley in : consultation , trackback

The FSA published its Mortgage Market Review Discussion Paper today. In keeping with the subject matter the FSA seems to be planning to do more to generate interest in this DP than in some of its other initiatives:

The discussion period ends on 30 January 2010. We intend to run roadshows and set up industry and consumer groups during the discussion period to share views and promote discussion of the main areas for debate.

The issues raised are somewhat complex and described with some complexity (I think the discussion of whether it might be a good idea to adjust prudential rules to protect consumers (the FSA concludes not) requires more than one reading). The FSA does propose to require income verification for all mortgage applicants and to make lenders responsible for verifying affordability. And the discussion paper also raises other questions for consideration, such as whether to prohibit mortgage loans to customers with “low borrowing capacity”. The DP suggests that the FSA wants to do more in future to protect borrowers not just from lenders but also from themselves:

overall, we think that our regulatory strategy needs to change to one that relies less on disclosure as a regulatory tool and looks to influence consumer behaviour in a more sophisticated way.
We signal here a greater realism about the behavioural biases that drive excess borrowing and a willingness to be more interventionist to help protect consumers from themselves (for example, through banning products or prohibiting sales to those consumers exhibiting multiple high-risk characteristics or limiting the amount of equity that can be withdrawn)…
We have also considered how financial capability initiatives may help (for example, by re-educating consumers away from the idea that renting is bad and home ownership good, and away from seeing property as an investment).

But if the roadshows generate consumer interest and consumers say they don’t want to be nannied, what does the FSA do then?

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