Monday, October 19, 2009

Err.. No Tim

Tim Worstall's getting on his high horse about the FSA’s Mortgage Market Review and it's call for the end of self-cert mortgages (or liar loans). It's quite amusing.
But to ban them? To say “no, you may not lend your money as you wish”?
I didn't think it was the bank's money myself, I thought it was our money but that's another argument. Why on earth are self cert mortgages a must, what on earth is wrong with regulating to insist on proof of income? If you can't prove your income, rent, it's what most people do if they find themselves unable to get a mortgage.

Self-cert mortgages are not a niche product, they're a very common one here's Stephanie Flanders:

Thus the FSA's decision to single out self-certified mortgages for abolition - and all other products which do not require proof of income. These accounted for a shocking 49% of mortgages in 2007, a large number from specialist lenders
And next from the report itself:

No other country that we assessed for comparative purposes featured a similarly significant NIV (non-income verified) market segment, with the exception of the USA and Ireland, both of which have experienced a boom in mortgage credit and house prices followed by a severe reduction in both
So, we have a pretty good indication that this was a common practice and that the end results were disasterous. It's not hard to see why either, financial innovations meant that lenders could move most of the risk off their balance sheets and on to another party. Lenders were no longer incentivised to examine the risk, the whole system was dysfunctional. It's not a move that's a tad silly, it's entirely sensible.

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