Sub-prime Comment
The latest FSA review of the sub-prime market criticised lenders and intermediaries, exposing weaknesses in lending practices and in the methods used to assess a customer’s ability to afford a mortgage. It wasn’t all bad news: the research found no particular evidence of bad credit remortgages being wrongly sold to prime customers, despite accusations of this in the past. There were criticisms, of course, and the inability to assess a customer’s affordability was a definite concern. Some points were raised against intermediaries and brokers and their inability to demonstrate why they took a particular course of action. There is some evidence of poor record keeping.
There were, according to the report less than half of the files on customers with self-certified incomes which explained why customers had to certify their own incomes. In fact, of course, self-certification of income might have been the right thing to do, but without evidence, the FSA can only be suspicious of the motives. The question is whether well-kept records might have painted a very different picture for the FSA to view.
There is little doubt that the sub-prime sector has made great strides in recent years to come into the mainstream form murky back-street dealings. Borrowers with debt problems are no longer forced into the ravenous maws of loans sharks. Sub-prime customers are now better served than at any time in the past. If one or two providers slip up in their processes from time to time, then the FSA is there to keep them in check.
Borrowers with poor credit histories now have access to a large range of competitive products from lenders who are strictly regulated (as the latest report amply demonstrates) by one of the toughest regulators in the world.
It is easy to make sub-prime a target for criticism, especially when it is a dirty word in the US after the goings-on over the Atlantic, but in the UK things should be kept in perspective.