By the time this edition of T-CNews hit desks, the long awaited final MMR [Mortgage Market Review] implementation date, 26 April 2014, will almost be upon us. Hopefully, most firms are on top of, and up to date, with their implementation planning. After all, we have had a long time to think about the implementation of MMR. It seems amazing, but is true, that MMR was first muted in October 2009 when the FSA issued the MMR Discussion Paper (DP) 09/3, which set out broad concerns about the UK mortgage market and invited debate on a suggested package of reforms to address them. There has been a regular stream of consultation and policy papers ever since and frankly, therefore, if any firm is not ready time is running out and urgent action needs to be taken quickly.
When considering MMR implementation, it is worthwhile considering why the changes are being made. Regulators are in no doubt that at the height of the last mortgage boom (2007/2008) the mortgage market had become dysfunctional. While on one hand the mortgage market had worked well for many people, on the other hand it allowed reckless lending which resulted in server hardship in some circumstances. The regulatory framework in place at the time had proved to be ineffective in constraining particularly high-risk lending and borrowing. At the same time, poor systems of control allowed an exponential growth in mortgage fraud (both actual and unintentional). The objectives behind the MMR package of reforms are that those customers who can afford mortgages (the great majority) should have continued access to the funds they need while a return to the poor practices that evolved in the previous chase to grow market share are prevented.
So, let’s get back to basics, the critical steps to any successfully implementation plan requires the following to be judged:
- Key actions required;
- Specify who is responsible for the actions;
- Record key dates including a target completion date; and
- How any implementation risks will be mitigated.
In respect of MMR, it is vital that those who are responsible for the implementation fully understand the rules, know what changes need to be made to sales processes, understand the impacts on training and competence regimes and understand what changes will be needed to IT systems.
The main principle behind MMR is that consumers receive “better outcomes”. Therefore, firms should take the time that is left to ensure that the consumer is at the heart of everything they do.
The most relevant changes that need to be implemented are:
- For mortgage brokers
- The removal of the requirement on intermediaries to assess affordability.
- Most interactive sales (e.g. face to face or telephone) to be advised.
- An ‘execution only’ sales process for non-interactive sales (internet and postal).
- Every seller required to hold a relevant mortgage qualification.
- Changes to the ‘Initial Disclosure Document’ [IDD] requirements
- Changes to the ‘Key Facts Illustration’ [KYI] process.
- For mortgage product providers
- Lenders will be now be fully responsible for assessing whether the customer can afford the loan although lenders can still involve intermediaries in the process, but lenders cannot abdicate responsibility.
- Lenders will have to assess the credibility of any strategy for repaying the capital where an interest only mortgage is granted.
The main principle behind MMR is that consumers receive “better outcomes”. Therefore, firms should take the time that is left to ensure that the consumer is at the heart of everything they do. This will need to be evidenced by business models, sales processes and incentives and post-sales transactions. The historic compliance culture of ticking boxes will no longer be enough; a firm could have had meticulous records and procedures in place, yet still be recommending unsuitable products. This will not be tolerated under MMR.
