FSA closes the doors after the horse has bolted

It is surely beyond belief that according to the FSA,at the height of Britain's booming mortgage market, nearly half of the total amount lent was done so without any checks being made that borrowers had the income they claimed to repay their loans.

The soon to be abolished Financial regulator has published plans to prevent a return of the risky mortgage lending seen in boom times.

Their Mortgage Market Review aims to prevent a recurrence of the "irresponsible lending"which resulted in some borrowers taking on mortgages which only seemed affordable on the assumption that house prices would always rise

The result being that many of those borrowers ended up struggling to repay their mortgage and in danger of losing their home.

The review recommends that loans should only be approved where there is an expectation that it can be repaid without having to rely on "uncertain" house price rises in the future.

According to the FSA,around 15 per cent of borrowers who took out mortgages between 2005 and 2010 could be in negative equity,

Lord Turner, chairman of the FSA, said of the proposals:

“We believe that these are common sense proposals which serve the interests of both lenders and borrowers. While the excesses of the pre-crisis period have largely disappeared from the current market, it is important to ensure that better practice endures in future when memories of the crisis recede and the dangers of poor practice return.

Green shoots take a blow in the mortgage market

A setback for any signs of green shoots in the housing market as figures out this money show mortgage completions down 6.8 per cent in February and 25 per cent down on a year ago.

It was the first fall since the end of last year and may signal that the confidence that was returning to the housing mareket is not as solid as some were forecasting

Repossession scheme not being taken up

One story that may well get more coverage is the news that apart from the nationalised banks,no other lender has so far taken up the government's offer of the mortgage subsidy scheme.

Heralded as one of the major ways of getting the housing market moving and protecting those losing their jobs from eviction,it has be shunned by amongst others,Barclays, HSBC, Nationwide and Spain's Santander.

The scheme allow for borrowers who have lost their jobs to defer all capital repayments and up to 70 per cent of interest for two years.

Up to 28,000 people have become victims of repossession since the proposals were announced by the housing secretary Margaret Beckett.

According to the Times,a spokesman for Abbey part of Santander said

Abbey offers similar levels of forbearance to those offered under the Homeowners Mortgage Support scheme. On this basis our participation would be extremely limited and therefore we will continue with our own programme, which we believe meets the Government's objectives.”

But will it work?

I think that Mike Smithson has got it spot on after lokking the morning newspapers but how much of a protection does the announcement yesterday actually give.

One of the contentious issues is surely how do you prove that someone's drop in income is related to the recession.How do you account for people who overcommitted in the first place and how are the banks going to fund this?

After all although the government is going to guarantee the mortgage interest for two years,they will still have to show it as liability and thus will impair their abilities to lend

A rock and a hard place for Darling

Today's Crosby report on the Mortgage market couples with the latest figures on new home loans makes dire reading for economy watchers.

Loans in June were 67% down on the comparable figures for last year,have fallen for 14 consecutive months and are at their lowest level since 1993.

The only good news is that the cost of deals for new mortgages is finally being cut.

This is essentially the nadir of the credit crunch which has seen funding effectively dry up in the Western economies.Sir James Crosby's report is gloomy sand says that this shortage of finance will remain until 2010.

For the economy this will mean continuing depressed house prices and the associated lack of consumer confidence.Where does this then leave the government?

The answer is in a tricky position.It initiated the Crosby review and will find it difficult to shy away form its recommendations.

These are that

1. industry-led initiatives to develop a consistent, high-quality mortgage-backed bond to create a "gold standard" bond attractive to investors

2. the Bank of England could extend its existing special liquidity scheme to encourage new issuance of mortgage-backed bonds although Crosby notes it is "debatable" how much help this would be

3. the Financial Services Authority could tackle "regulatory distortions" between banks, building societies and investment sectors

4. a government guarantee to transfer the risk of investing in mortgage-backed bonds from investors to the government.

But Alistair Darling will find himself caught between a rock and a hard place.Political pressure on Gordon Brown means that he will have to be seen to be doing something.However how can the government support a scheme that will essentially be securing taxpayers money against falling assets and increase government borrowing.

There is also the issue of Northern Rock,a company that no longer wants any domestic mortgage business.Its activities are damaging the market as it offloads mortgages in order to repay back the loan from the government.