Examination of Witnesses (Question Numbers
23 MARCH 2010
Q140 John Thurso: Multiple high risk
Mr Pain: Yes. So those were the
areas where we think clearly those consumers are most vulnerable
in that context. That is the most logical place you would start
Ms Titcomb: Looking at the design
of products such as that and the marketing of those products to
vulnerable consumers very much reflects our new conduct strategy
anyway, which is to look further up the value chain at the actual
design and marketing of products, not just after the event when
they have been sold.
Q141 John Thurso: Does this not go
to really the heart of what people offering mortgages ought to
be doing as their core business? We are talking about multiple
high-risk characteristics, we are talking about people who should
not be put in the position of achieving a loan, basically, and
that ought to be the core business of what somebody offering a
mortgage ought to be about. Is it not an indictment of the system
that people can get a mortgage who have those high-risk characteristics,
and how do we put that human evaluation of risk back into the
Mr Pain: Those are the very issues
that we are trying to address with part of the mortgage market.
I come back to say that it is not some people with an impaired
credit history or with some elements of those high-risk aspects
of having a high LTV or high loan-to-income ratio, but the risk
is increased if they have a combination of all those factors.
That is where our focus will be. We do not necessarily want to
shut out somebody because they happen to have an impaired credit
history, or, likewise, because they are asking for a high LTV,
what we think fundamentally sits behind it (your point) is they
can demonstrate they can afford the mortgageno more, no
lesson that basis. What we found was that where that was
not the case you increase the likelihood of those customers going
into arrears. On the same basis, if you look back at the data
we gave in our Mortgage Market Review, those instances where income
was not verified also showed a higher issue in some cases of arrears.
Q142 John Thurso: That brings me
on neatly to my last question, which is to ask you whether there
was any industry opposition to your proposal to end non-income
verification or self-certified mortgages. Were there any (I will
ask the simple question first), and, if there were any
Mr Pain: I think it is fair to
say that the industry
Q143 John Thurso: What were the arguments
that they deployed?
Mr Pain: I think the argument
they deployed, of course, was that not all those mortgages in
those categories necessarily turned out to fall into arrears,
which is obviously a statement of fact. What we were saying was
there was a higher propensity for the instances of arrears in
some of those areas. On income verification, of course, the industry
has a view that with some, particularly, re-mortgaging or returning
consumers to the mortgage market there might be a case where there
is a lower level of risk with those consumers having to verify
their income. I think our view at the time of the Mortgage Market
Review was that the requirement of income verification was not
a complete impediment to somebody having access to the mortgage
market. It might involve some extra work, extra process, but we
think the safeguards that produces are well worth those efforts.
Q144 John Thurso: What we are actually
talking about is not whether or not a person on a certain income
is good for a loan or not, we are talking about whether the income
they have declared is actually their income.
Ms Titcomb: Correct. The other
factors given were the costs of introducing new systems, the fact
that the particular product of self-cert (which is where the particular
issue had arisen), a niche product, was no longer being marketed,
and the fact that if we were to require income verification in
all cases it would end up in possibly denying access to the market
for some customers.
Q145 John Thurso: We would want to
deny access to them, would we not? That is the point. We want
to help them make the right decision.
Ms Titcomb: We certainly want
a proper assessment of affordability and verification of income,
Q146 Chair: Thank you for your time
in giving us this progress report since your last appearance.
The issue of enforcement and disciplinary action, I think, is
work in progress, and whilst this Committee in this Parliament
will not look at it again, I sincerely hope that in the next Parliament
the Treasury Committee will invite you back and you have a positive
discussion with them. Thank you very much.
Mr Pain: I look forward to that.
Thank you, Chairman.
Ms Titcomb: Thank you.