Regulators around the world are showing signs that they are losing it. Mortgage Refinance approvals are at historical low levels. Mortgage lenders are naturally cautious when they have large amount of bad debt in their book and it seems that it can only get worse before it gets better. On top of that, regulators are pressuring to get them extra careful with their lending criteria. Many mortgage products have disappeared off the shelves. No doubt some of them had to go. However, it seems that the balance has tipped towards protectionism.
On the one hand authorities want to pressure banks to lend more money, on the other hand, they want to regulate mortgage lending to an extend that to qualify for a mortgage you need to jump 10 hoops. Regulators have lost the courage and conviction and now going from one extreme to another.
Financial Services Authority in Britain has come up with new proposals and probably other regulators in Europe and America working along the same lines. FSA is proposing new tougher affordability tests as well as interest rate stress test. In short, they want to build their houses on solid rock ten levels deep. So who is going to buy those houses if there are only handful of qualified mortgage applicants? Many homeowners will have to stay put in hear of not qualifying for a new mortgage if they have sold their home.
The fear is that business logic will be thrown out of the window. For example, what happened to Self Certification mortgages is beyond logic. It is acceptable to increase the down payment requirements, but to eradicate them is just protectionism beyond reason. If someone puts down 50% of the value of a property, they should be absolutely no questions to ask. This is the way you move housing market and get a few foreclosed properties sold. Someone is happy to put his hard earned cash down on a property, but authorities want to know how much he has earned 3 years ago, what was his great grandfather’s nick name.
It is like Irobot. Authorities want us to do nothing so that we are safe. What happened to the message of venturing and taking risks to succeed in life? If you can not take a risk on a solid property at ridiculously low prices, what can you take a risk on?
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