whos kidding who

it is and will in the future. There are a lot of items that are tax deductable for self employed ie car/vans home useage fuel cost etc these are all deducted to come up with net profit of which lenders use, they dont understand accounts to start off with therefore their borrowing ability is reduced.

Posted by: bob

Indeed..

I thought part of the FSA guidelines were no projecte income! Accounts are historic and do not relte to current income so are not representitive of earnings, if lenders are able o accept accuntant projections then maybe it can work.

Posted by: Smudger

Self Cert

Which part of the planet Zog do these people live on! It's hard enough trying to ge a straight forward income accepted never mind someone who has a varied income. Why don't the people at the FSA try submitting a case and then they would realise what they are pontificating about. No-one wants to deal with hooky clients but there is and always will be a need for this type of facility.

Posted by: David

Self-Cert mortgages

I'm not sure why the FSA has to poke it's nose into self-cert mortgages. If a lender want to take the risk of lending money then they should make that commercial decision based on their business model and not ask for income at all. The problem is that lenders ask for incomes which as the article says can be inflated. Lenders who wish to be in this market place should not request any income verification at all. Otherwise steer clear of all self-cert mortgages altogether and don't offer them. In which case the FSA has no purpose in this matter and should keep out. I have awarded wooden spoons all round to the FSA and the lenders!

Posted by: F-Pack Wooden Spoon Team

Self-employed underwriting

I have to say that I agree with the FSA on this one. Whilst the introduction of self-certification did then mean that the self-employed could get a mortgage that might have been difficult before, this then lead to lenders not having to understand self-employed income and so laziness set in. By removing the option of self-certification it will mean the lenders have to train people better to read a set of accounts and not just the bottom line. Having once worked for a bank as an underwriter, I can say that there was very little done to encourage an understanding of this type of applicant. It will be very interesting to see how things develop from here and whilst I do not say that self-cert will not be missed, it will possibly lead to better products for those clients that would have be penalised before.

Posted by: David Sheppard

FSA should know

The FSA should know that their action will restrict mortgages for the self employed. Lenders require up-to-date details of income to comply with FSA regulations and self-employed cannot, by the very nature of their work, provide proof of that income. The most they can provide is an accountant's provisional assessment of income. To get rid of self certification or "fastrack" - whatever you want to call it - will seriously affect entrepreneurship and decimate residential property assets.

Posted by: Ken Durkin

Self Cert

There will be 300 or so MPs come June/July who may not have a permanent job & may well be need of self cert mtges. As a previous poster pointed out if the lender is willing to take the risk & the client is whats the problem. However at present lenders won't take the risk because firstly there is no need at the moment due to restriction of cash but that will change in time & secondly despite what the FSA say lenders are terrified of having some retrospective review & getting fined millions of pounds.

Posted by: Nick

Same old Same Old

Well once again The FSA cant see why a self employed person could not prove income ????????. As usual they dont live in the world of Lenders changing the Goalposts at every oppotunity .As someone has said getting cases agreed even proving income is a nightmare ,i do not and would not deal with OOKY clients and i am compliant. the shame is if the FSA had to work in this industry they may know how to proceed ,but again and again they revell in proving to us how little they understand how and what we do .well done FSA pat yourselves on the back becuase no one else will

Posted by: Bazza

I am no lover of the FSA BUT

I am no lover of the FSA as a lot of my posts will show BUT the comments by those of you above do make me question how many have you have actually READ what the FSA Discussion paper 09/03 Mortgage Market Review said. The main bits I picked up were verified incoem (historical) and plausable future income (forecasts). It is then down to the lender to put staff in place which actually understand accounts of both teh self employed and the employed.

Posted by: Phil Castle

Self-cert ban will not hamper Self-employed

Perhaps the FSA would like to respond to this scenario & fully explain how it fits in with the indutsry requirement of "Treating Customers Fairly". I meet to individuals from the same company. Client.A is the Director while Client.B is one of the employee's. They are both attempting to move house and requirement mortgage facilities. Client.A is assessed on historical accounts which could be as much 18 month old and do not reflect his true income position, whilst Client.B the employee could be assessed on his last month's pay-slip. HOW EVER YOU WANT TO LOOK AT THIS SCENARIO IT IS NOT T.C.F & THEREFORE ALL LENDERS ARE POTENTIALLY IN BREACH OF FSA RULES! A self-cert mortgage for Client.A would allow the adviser to show the true up to date position with regards to there current Salary/ Dividends &/or Drawings from the business! Perhaps an FSA spokesperson could like to respond and explain this statement?

Posted by: John Morgan

Ban self cert only when lenders join the human race!

I had enormous difficulty placing a mortgage for a 1 woman Ltd company. She had fantastic profits but these were left inside the company for tax reasons. When she wanted to buy out her ex-huband's share of equity, it was a nightmare to place the mortgage as the profits inside the company were not taxable income and not acceptable to mainstream lenders. We were forced to go self-cert (fortunately at very good rates!)yet the lender asked for her accounts! No problem but without self-cert my client would have had to have sold her house. I daresay the FSA like myself would have thought the case would have been easy to place but then you have to deal with lenders who are clueless.

Posted by: Paul

Dont blame the FSA for poor underwriting by lenders

This is really a case of lenders training underwriters properly. Underwriters that understand accounts will know what can be added back in and this together with a letter from the accountant or management accountants would be sufficient for an experienced underwriter with a proper mandate to be able to offer on a self employed mortgage application where there was sufficient income,.

Posted by: JonJon

Self cert ban will not hamper by the FSA

The FSA are living in a Fairy world full of Pixies and Elfs. If self cert was to account for 45% of the business sold in the pass, I think they seem to forget the rest of the business was either Fast track, affordability or Buy to lets. Very little was actually full status. Although on the books a lot of full status will show, but remember these were done on a F/T or Affordability. If the lenders do not believe me, then do an audit and ask your clients for proof of payslips etc. Lets look at fast tracks - Northern rock, BOS and various other account managers came to me in the past and told me that fast track was basically as good as a self cert. They encouraged hyping up the figures (At this stage, I must point out that I never did one of these!!) and as long as the client passed the credit score, nothing else would be asked. Loads of brokers did F/T. Then, Affordability – this was normally 7 to 10 times income with the likes of HBOS, First National and many more. Then finally Buy to lets – who remembers 85% & 90% LTV But to Let Products. Now lets look at today’s market – oh yeah…. We are in a recession!!!!! Lenders are making it extremely difficult to acquire funding. They offer a client 90%LTV if you go direct or 85% LTV through a broker for the same product. So what do you think may happen next year?? The only people who have managed to stay afloat in these difficult times are really strong self employed people – BUT, they are sinking. If these people lose their business so do all the EMPLOYED staff. By next year if the FSA do not change their ruling about the withdrawal of self certs, the UK is knackered. So all those people who took out mortgages on any of the above i.e. 90% of the population is now fcuk-ed. Due to being able to offset a lot of income against tax, the self employed person does not show his actual true income. This I thought everyone knew. Those poor idiots in their Ivory Towers haven’t thought it through properly. Please bring back Hitler, he was earlier to work with I would guess (I’m only kidding about Hitler – for those who take offence - but you get the point). If they thought about it carefully, then they would only allow self cert for people who are self employed, with larger deposits, and can prove they are self employed by showing a tax return or a letter from HMRC. Bank is happy as they are the ones taking the risk. If the FSA wants to sticks it nose in – fcuk-ing become a bank.Think carefully what you say because lenders take things literally - and to say "sorry i made a mistake" is sometimes a good thing to say. I do hope one of those morons reads this article. Feel free to call as you have now finally drove me out of business!!!

Posted by: Josh

Come off it.

There seems to be only two posts of rationale and common sense (one from Phil as ever!) Come off you lot. The FSA is right. The previous regime was nothing more than fraud and money laundering. Of course the self employed can verify income – they do it annually – it’s called a tax return. If they fiddle their income by taking cash – then tough – you can’t have it all ways. If the tax return over the last three years doesn’t match the amount to be borrowed – tough – they will need to look at a smaller property – or take out less from the one they have. This is what is called reality. The previous regime was cloud cuckoo land. We are now (and I hope for evermore) back in the land of sense where people don’t get money thrown at them because they ask for it. The party has come to an end for the most personally indebted country in the world. And good job too! This is one occasion where the FSA could be seen to be doing its job properly – if only they would be unequivocal about it. But I bet the politicians are holding them back on this.

Posted by: Harry Katz

No need for income details

Why should it concern a lender what a person earns? There should be no need for any income details whatsoever on a secured loan of up to 60% LTV. If the borrower fails to service the loan the property is repossessed, and the lender takes the profit.

Posted by: Ken Durkin

Accident waiting to happen

The FSA are banning the pull a figure out of the air "self cert" and say you can afford it, not PLAUSABLE projections which are self cert with an element of realism. A good business should have a business plan, a cash flow forecast and a profit and loss forecast and many IFAs use "lifetime cashflow software (or a spreadsheet in my case) to help their clients see their needs over time. This is what the FSA is implying anyone who wants a mortgage where historical income may not be sufficient needs to put in front of their adviser and the lenders underwriter. For the adviser, challenging plausability of what the clients has projected is a responsinility of teh adviser to the CLIENT, to protect them from themselves and for the udnerwriter it is a responsibility to their employer. It is this plausability the FSA is implying they will question in future so be forewarned NOW and make sure you can hand on heart stand up and explain why you thought the clients figures plausable and what you did to challenge it (i.e. checking with the accountant, looking at similar businesses and so on) Please READ the paper as so many appear not to have done before trying to hang Lesley Titcombe(FSA). I might not agree with her stance on Dual pricing of mortgages, nor with her staff on what can go in a Client Agreement, nor with the FSA's stance on lack of a Longstop, nor with their one sided report on Structured Products which failed to identify it's own failings so both advisers AND the FSA could learn from their mistakes, but if you read the whole mortgage paper, there are some well made points which people need to think about. THINK about how you can work with the system they are suggesting and it is actually for the lenders to then sort their act out and get suitably knowledgable underwriters in place. What the FSA are saying is only common sense if you are an adviser to your client, you have a duty of care to point out to the client they are being stupid and their figures are unrealistic but you also have some responsibility to the lender to give them a true picture on which they can underwrite a case (yes a lot of lenders do NOT have a clue about business clients and their should be mandatory training for underwriters in interpreting business accounts which used to form part of the Chartered institute of bankers exams in the 1980's) Underwriters SHOULD hold relevant qualifications and personally I think they should appear on the FSA register along with mortgage brokers so that a meaningfully record of all authorsied individuals for complaints and for arrears/repossessions on mortgages can be built up and trends investigated.

Posted by: Phil Castle

Silly comments by people.

You know what. There was a comment from Harry and Paul. They feel the FSA have done good. Well all I can say is good for them - for speaking their mind! If I can please make an assumption on both Harry and Paul, either they are IFA’s and possibly do 3 to 6 mortgages a year (and they class themselves very experienced within this industry) or they are underwriters and always worked for a company and feel their opinions matter, or they work for the FSA, or maybe they are trying to get a response. Well, you sure got one!!! As a broker who ran a company with 12 to 15 staff, and receiving over 400 enquiries a MONTH, approx 2 years ago, I think I would say I am a pretty good spokesperson for a broker. Now all my employees are no more as they are made redundant. Over the past 3 months I have received 200 enquiries of which I was able to place 3. This is because I did not want to do a fraudulent application, nor a fast track. Most of these enquiries had equity within their properties of 20 to 25%, but most had arrears or late payments or needed self cert. But of course, based on your comments I was fraudulent and involved in money laundering as every other broker was. I don’t actually get your comments on money laundering, but then you were probably just looking for a response anyway to your comments. With all due respect, I really don’t think you speak for the majority of brokers. Harry mentions that self employed fiddle their income – I think Harry is an employee and also his income is not very good and therefore he may be a bit jealous. Well – never mind Harry, one day you too may become self employed and see how self employed work. They work all hours of the day to make a living. The responsibility of everything including the future of their employees falls on their shoulders. And because they offset their petrol on tax and the coffee they buy their staff on tax, this really does not make them a bad person.

Posted by: Josh

For once I agree

With the FSA. Also, what Phil & Harry have said is common sense. Self-cert was a useful tool for some but, as always seems to be the case, a few sailed too close to the wind & used it as a free for all, getting loans for some who maybe should not have had one. Lenders also contributed to this by making them so widely available. So, what exactly is the problem? the FSA are simply exercising their powers in a sensible way in this instance to bring some sense of normality back to the mortgage market. It is lending policy which is causing a lot of the issues, not the FSA stopping what in the end looked like dubious practice. It's not that long ago that self-cert was offered only by a few lenders, most of them being centralised (remember UCB, Mortgage Express etc in the early 90's?). The relaxing of lending criteria some years ago started with enhanced income multiples being the norm (i.e. higher than the traditional 3+1 etc) - Northern Crock offered a friend of mine 7x income at one point. It then developed in to mainstream lenders offering self-cert - wasn't it just greed being fuelled by an insatiable desire for "want it now, got to have it now" attitudes being funded by the huge rises in property value which a lot of people (who should have known better) thought would never stop? The FSA has a remit to engender consumer confidence in financial markets - they are doing that with this particular issue.

Posted by: David McCabe

To Josh

Have you read the FSA paper as what you have written about yor business is all about your problems with the lenders and their underwriters and yet you are blaming that bon the FSA. I've blamed the FSA (publicly using my own name and not just "Josh" on many occassions and had sparring letters wit Lesley Titcombe. I do know how to interpret business accounts, both sole traders/partnerships and Ltd Companies As I said earlier that was part of the CIOBs exam system in the 1980's where you studied law relating to banking, accounting and economis so that you could make lending decisions for your business clients. There is absolutely NOTHING on those issues in the mortgage qualifications. Don't blame things on the FSA which are NOT of their making. This is a lender/underwriting issue. The FSA have NOT laid down maximum LTVs, nor maximum income multiples so if the lender/underwriter wants to take in to account the legitimate and lawful offsetting of expernditure for tax purposes and add it back on top of the net profit before calculating an income multiple when comparing to an employed person, they CAN. The point they and any ADVISER like Harry or I are making is that it has to be PLAUSABLE and you have to be willing to stand by the decision as to that plausability when putting the application to the lender and after completion if the mortgage defaults you may have to explain yourself to the FSA andif you've done lots of mortgages you sid were plausable and the evidence you have as to why you thought them so is flimsy, be prepared for a fine. Adn Josh if you want to have a go at people who have quoted their own names, do your research first, Harry runs his own small IFA firm and I think you'll find he's been self employed or run his own business most of his 40 year working life, I've had my own business for 11 years and been in FS since the day I left school in April 1983, I've been tied and an IFA so I've been both sides of the fence. You've told us you are the big I am with your staff and your volume of mortgages, but that does NOT make you a good adviser, just good at milking what you could while you could (nothing wrong with that, it's business), but the glut of money available to lenders pumped in to the system at the beginning of the gulf war has now ended and it's back to a diose of reality.

Posted by: Phil Castle

Down with Entrepreneurs

Let's not forget that other than the civil service and government agencies (like the FSA) all the "employed" people who are able to get mortgages after three months in employment are working for these self employed business owners. Furthermore if the business has been trading for less than 18 months it is most unlikely accounts for the first period would have been prepared, and of course any historical accounts will not reflect income presently being received. It seems farcical that the employer is unable to get a mortgage when all his staff are able to, despite that, if the business does actually fail the staff will lose their jobs well before the business owner loses his.

Posted by: Michael Thommes

Gramar

Mai ay sugest to yor corresponentds that befor submiting a coment that thay produce the there rant in word pro or sum such simlar to make soor the gramer and spelling is corect, may bi then the FSA who reeed theez coments may taik them sereousle

Posted by: M Thomas

Self certfication

I am stunned that one or two are praising the FSA. This body was fully aware that nearly all lenders were offering self cert in one guise or another, even up to 90% but they turned a blind eye, just like the regulators did with Endowments and Pensions. Now they are intent on driving brokers from the market and it is everybody else's fault apart from theirs. Although there were without doubt dodgy mortgage applications the majority of brokers were honest hardworking people. We were only offering what was available. There is a need for self cert (after all it has been around for 20 years or more without hardly a problem)but it does need to be regulated better. The onus should be put on the advisor giving the advice. The advisor needs to be able to justify on their files the incomes for the clients. Those that cannot should be de-regulated, through normal compliance checking. Banning self certfication is a knee jerk reaction by the FSA to try and justify their existence. Remind me was it not sub prime in America that caused the "credit crunch" not self certfication? WAs it not the banks? that caused the problems not the brokers

Posted by: Glenn

Lenders do NOT understand how self-employment works

Well I'm stuffed then. Over the past 2 years I have chosen to re-invest the majority of sales income back into my business, thus drawing near-zero income for myself. This was a choice I made in order to grow my business faster. If I wanted my business to grow at a slower rate, I could have taken a decent income. So I will be penalised for choosing to grow my business quickly and ultimately earn a higher amount a few years earlier. Will a lender really lend to me based on 3 years accounts - the first two of which state near-zero profit, and the third which shows a reasonable amount? The FSA are on another planet. Yet another example of the self-employed being treated negatively.

Posted by: Catriona

Looks like I'll have to repeat myself

I do NOT like the FSA. I am not praising their actions over the last 10 years and have signed the No10 petition stating I have no confidence in the FSAs current managament. HOWEVER I have read the FSAs mortgage paper which most of the comments above suggest to me many posters here have NOT. Income verification does not mean you have to use a 4 times multiple on the net profit, it means you have to have both historical verification of what the clients business has generated (or lost)and PLAUSABLE projections of both cash flow and profit and loss which most good businesses should do for a year in advance to identify it's borrowing requirements including overdraft and loans.If the client is not capable of doing these themselves, then that is what an accountant is for, not just drawing up historical figues of what HAS happened, but what might happen. These figures should NOT be taken on face value (self cert WAS always an accident waiting to happen), they should be looked at to help PROTECT the client from themselves (you have a duty of care if you truly ARE an agent of the client and not of the lender or yourself)and both the client and the accountants should be challenged if anything appears UNplausable, that was one of the reasons why the proc fees on this sort of work should be higher than on a full status employed mortgage, because you SHOULD be doing more work for them and not less. Historically before agreeing an overdraft 20 years ago, cashflow forecasts and PandL forecasts was what your bank manager asked for so they knew what facilities needed to be agreed and so they could make sure they had the appropriate secutiry for their lending. Unfortunately this was before they forgot that banking was about providing a service for which you charged a margin rather than trying to sell products left right and centre which was not the reason why the client came in to the bank in the first place. The FSA are NOT saying you cannot do a mortgage of £500,000 for a self employed person who only had a net profit (or loss) of £5,000 last year, or one that has only been in business for a month, what they are saying is you need to verify (i.e. look at they made a loss. was it a one off, is it a diwnward trend etc) If you and they/their accountants then calculate they can afford a higehr figure, it needs to be using PLAUSABLE informaiton of previous years and future projections you feel able to reccomend they apply for a mortgage of £500,000. If you do NOT have a plausable reason and things go wrong, then god help you as it may not be the FSA who come for you, it could be the client or more likely their spouse.

Posted by: Phil Castle

Self cert

I think Phil makes some fair comments. It should always have been a broker's moral obligation to ensure that they act in a responsible manner. Banning Self cert does not cure this problem all it does is re-introduce problems that previously existed. WE can all moan that underwriters need to wise up and learn to assess accounts etc in a more realistic knowledgeable way, but all lenders want to have a set model for approving or declining a case. Sadly "taking a view based on risk assessment" may be impractical to re-introduce as lenders move more to computer applications. Currently we have lending based on income multiples or lending based on affordability models. There is however a very real issue that needed to be overcome where clients could genuingly afford a mortgage but their circumstances did not fit either of these models. Lenders needed a solution to tap this wealth of business. They came up with self cert. For 20 years or so there has been little problem with self cert and it would be fair to say the economy has been driven in part very successfully through this type of lending. YES unfortuinately it got out of hand and applications were submitted that should not have been. As said the FSA knew this (unless of course they really are dim). The answer is to put tighter controls in place for self cert. If you do not then recovery in this country will take longer. If lenders do decide that mortgages can be assessed by underwriters ignoring income multiples or affordability models then great but this would surely mean a return to paper applications and a slower process. HOw, for example would you decide what income to input to get an AIP if "true" income is still to "be assessed" based on risk by an underwriter. IF it dont fit the programming it will be declined if submitted on line. You would, in many cases, only be able to get an AIP agreed for a self employed person based on credit score rather than affordability. The final answer would have to be made at a later date I also question Phils view that self cert paid higher proc fees because of the extra work involved. Sorry lenders pay more because they earnt more from self cert cases. The lady from the FSA said that she could not see why self employed cannot easily prove their true income. Sadly that is the problem we face. They have not got a clue. I have had a referall for a millionaire client that owns companies all over the world including the UK. He has not however taken an income from his UK Ltd company partly because the income is not required and partly because he would have to pay 50% tax on the drawings. However the company made a profit last year of 400K and he is 100% shareholder, but I cannot get a mortgage for this client of 200K (yes only 200K)as lenders only take director remuneration and divis. Trust me lenders would love this guys risk free business. You never know he might even invest some of his wealth with them An underwriter in this "brave new world" might have licence to take a view, but that might mean requesting company accounts for foreign companies causing a delay. Lenders underwriters would become bogged down in paper applications, accounts, profit and loss sheets and assets and liability statements. There is already very little true underwrtiting going on. I cannot see lenders employing more and more underwriters and reversing the trend for computer approved mortgage applications. SO Phil yes it would be great to have a return to proper underwriting but is it really going to happen. I mean HBOS are laying of another 5,000 this month

Posted by: Glenn

Underwriters

I beleive the whole thing is going to go full circle. At the moment lenders have underwriters who understand how their computers work but have no real understanding of how to underwrite an application. Lenders who really want to lend to the self employed or contract workers are going to have to invest money to attract the old style underwriter who understands accounts for a start. My fear is that they will not do this and and the "computer says no" mentality will continue to the detriment of many people.

Posted by: Jason Legg

To Glenn

You see we are much nearer on our thinking. The challenge effectively the FSA have laid down is to the lenders. If they want to offer mortgages to anyone who is not a simple computer says yes, they need to put underwriters in place who have the skills to assess risk properly and you can't do that with a computer for the self employed As you correctly and as Jason said, the fear is that it will slow down the whole mortgage approval process and push things back to paper applications, but I don't see how an underwriter can underwrite something now when a client has no paper income without seeing accounts (whetehr they are annual audited or simple management accounts for a new business, a true underwriter should be able to make a decision). With regard the pay higher for self cert, I knew when I typed it I had not explained myself well and I accept what you were saying that from the lender's perspective, they paid more to some extent to gain the business, but then if the client didn't need self cert (under the old system) becuase they could evidence income to a computer system, then the rates should have meant the client got a full status mortgage. Even the MCCB were saying in 2002 that self cert was an accident waiting to happen. Has self cert really been around for 20 years? I thought it was only about the last 10 or so. Basically I entirely agree with Jason's post, both about what it means lenders need to do if they are not to fall fowl of the FSA OR the courts (ultimately if a lender has lent imprudently, they are opening up a bag of worms with regard realising their security), but also about fears that not enough lenders they will do this and get in proepr underwriteing and the "computer says no" mentality will continue to the detriment of many people. This is the response I think I will be adding to the FSA discussion paper, i.e. they need to think about the outcome of the ban on self cert and it's replacement with verification and plausability as a rule and give clear guidance to lenders on how they can meet this cost effectively. Bearing in mind there are practically NO self certs available at the moment from lenders anyway, it means the FSA have a few months to get a viable solution in place and people like Stuart Duncan who I believe is on AMI's working party are the ones best placed to tell the FSA what their next action needs to be in order to get the outcomes to something which might work as the current proposals, whilst justificable may prove unworkable withotu further thought before action.

Posted by: Phil Castle

Affordability

"Why," asks Mr Titcomb without expecting an answer, "would you lend money to someone without checking whether they could afford to repay it?" Because a mortgage is a loan with collateral, and if the borrowers miss some payments they could lose their property. So as far as the lender is concerned what matters most is the value of the collateral. How on earth does a spot check on income provide secure knowledge that borrowers will be able to repay a loan for 25 years??? The whole question of affordability only starts when lenders fear risk to the collateral, and that is an LTV assessment. What the FSA is proposing will, without a shadow of doubt, seriously undermine the housing market. Karl Marx said that capitalism, like feudalism before it, is an historical economic system. It will end, and what the FSA is proposing is a symptom of how it will eventually dissolve.

Posted by: Ken Durkin

Apology

I must apologise for my previous comment. I note that "Mr Titcomb" is also called "Lesley" so she could be "Mrs Titcomb, Ms Titcomb or Miss Titcomb" but she is defintely not "Mr".

Posted by: Ken Durkin

To Ken

I agree with a lot of your postings, so please don't take it personally if I appear to be disagreeing with you here. I was in branch banking in the late 80's and one of the areas the banks when seriously wrong with then was in what was described as "security led lending", i.e. the bank manager thought he'd got adequate security for a business propostion, but the housing crash then left them finding that when a business wasn't quite up to sracth as they'd paid too much attention to the security and NOT to the whole propostiion that they were having to realise the security for less than the outstanding borrowing. In the 1980's business lending staff were taught to look at the whole proposition and this to some extent is saying again with verification and plausability. The pnemonic for underwriting a business proposition was Campari and Ice (unfortunately as I was only in lending for about 2years I've forgotten what all of it stood for, but it was something like Character, ability, means, propostion, Assets?, repayments, interest & Insurance, charges? extras. There may be one or two who were more involved in business lending who can remind me what it all stood for, but if you think it through, using a process like this protects both the lender and the borrower from unforseen risks. Now a computer can put a score against certain issues, but a brain if you look at each issue in isolation can help you decide who is taking what risk and then charge accordingley or decline if you as a lender do not want to risk the bad press of agreeing a loan and then having to reposess the security (in this case someones home) with all the neg vibes if kicking them and their children out!

Posted by: Phil Castle

Sticking its nose in

I'm going to resist commenting on self-certs, but instead pick up on various comments about the FSA sticking its nose into something, and those asking "if the lender and the borrower want to take the risk, why should the FSA care". Are these the same people who are constantly berating the FSA for not having done something about the risky activities that brought our economy to its knees? You can't have it both ways.

Posted by: Bob

Maybe I'm just stupid

Maybe I’m being stupid , naïve or simply don’t have a clue but….. Assuming A lender made 500 loans at £100,000 total lending would be £5 million, interest charged on that 5 million at, lets say 5.5% would generate £2,750,000 per year. The Cml state repossession for this year will be in the region of 48000, this being 0.43% of ALL mortgage lending, wouldn’t this equate to our lender suffering 2.15 repossessions and potential loss of £215000 ( still £2,535,000 in profit I hope you note) but wait they have the security to sell!! Lets be mean and say they only achieve 75% of the loan outstanding repaid, £161250 that would reduce the actual loss on all those transactions to £53750. Our Lender is still in profit to the tune of £2696250 Even if Self cert did have a higher than average repo/default rate why all the hand wringing?? Our banks made a loss by gambling on investments not on residential lending. Until lenders start to look at self employed Gross Profit rather than Net Profit then the self employed need a self cert, employed never have. The FSA need to deal with the real issues ie: The Banks A monkey wrench is a murder weapon in the wrong hands remember

Posted by: Steve