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Monday, October 19, 2009

New Mortgage Rules

The FSA intends to firmly slam the door after the horse has bolted on "risky" lending, and is advocating new rules that will ban self-certified mortgages and impose rigorous new checks on homebuyers applying for mortgages.

Seemingly borrowers may even be asked how much they spend on booze and shoes (how does the FSA think that the banks can check up on that?).

Hector Sants, CEO of the Financial Services Authority (FSA), said that the FSA was going to "get rid of the irresponsible practices that put banks and consumers at risk".

All very well. However, the FSA has been in existence for well over a decade and these "irresponsible" practices have been well reported for many years.

Why, only now, do they seek to reform these practices?

The FSA will make banks and other lenders liable for loans that cannot be repaid.

The trouble is that the economy, during Brown's "no return to boom and bust" years, has been built up on lending made to eg self employed, those with risky credit ratings etc etc. To take lending practices back to the 70's will inevitably take the economy backwards as well.

Like it or not, the genie is out of the bottle and will be very difficult to put it back in without causing further damage to the economy.

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