secured loans and mortgages

hendragon

would people who read this please be kind enough to post their views?

I have seen a number of recent examples where IFAs, brokers, and lending companys turn a blind eye to their own rules governing the multiples of income they will lend for a mortgage. Eg if a person does not earn enough they simply invent a second income. I know of several cases where this has never been checked.
Regulation or self-regulation of the lenders and brokers would be difficult to enforce. I have thought for some time that the only solution is for the security for the loan to dicharge the debt if the borrower surrenders it. Ie if you give back the house,the debt will be finished even if there is insufficient money realised from any sale. The lender would not be able to try and obtain any further money from the borrower, as they can do at present, often trying to recover money several years later.
If the lenders think they are going to lose money they will be far more vigilant, and careful about how they lend.
It seems to me that the divergence between incomes and house prices needs controlling unless we want to end up with a similar deflationary cycle to Japan.
Thanks for sticking with reading this and I would very much like to know what people think!

dwight-van-man

Interesting theory - I don't think that self cert/fast track deals are soley responsible for house price rises through as most of the lenders that offer them have robust credit scoring processes in place, for example my employer who will 'fast -track loan application s in some circumstances, will only do it for a good credit score, track record of paying a mortgage within a reasonable figure of the new amount being applied for and an overall applicant profile that makes sense. IE a 21 year old with a salary of 60k would cause us to request some proof of earnings, likewise someone applying for a 200k loan where they currently had a 60k loan may also cause us to check income. Its a balance between common sense lending, which credit scoring allows and cost efficiency, which fast tracking allows by reducing processing costs and times, which in turn keeps the rate and fees low for the client.

In terms of it being difficult to regulate the lender and broker - it probably is but the FSA are doing a thorough job of it with fast track/self-cert being one of the first things they looked at. Ultimately though, lying on an applicatio is fraud and the responsibility for this lies with the client. Irrespective of what the lender allows in terms of income checking or what the broker or branch adviser suggests the client claims is their income, it is the client that signs the application to say that the details contained therin are correct. Why should the lender be penalised if their checking processes have been deemed satisafctory?