Speaking at the Social Market Foundation (SMF) Conference promoting responsible lending, Stephen Knight, executive chairman of GMAC-RFC, urged policymakers, opinion formers and lenders to be on the same page when it comes to consumer protection and modern mortgage underwriting.
As part of his address, Stephen Knight revealed statistics, which provided evidence that automated underwriting, with its more sophisticated credit profiling, was producing better arrears and complaints statistics, thus providing better consumer protection and advantage.
Knight likened the method of checking income and then applying a multiple to rifling through a plumber’s tool bag and concluding he could do the job based on the number of tools he had. He said checking the exact amounts of a borrower’s income is no longer the best way of assessing capacity to pay a mortgage and determining real affordability - attitude to credit and a customer’s ability to understand and manage debt - is now much more important.
Knight stated the older approach to mortgage underwriting, still promoted by some commentators, let customers down badly, particularly in the recession of the early 1990s. He gave examples from GMAC-RFC’s experience of lending in Continental Europe where over-protection was leaving consumers with less choice and causing market inefficiency.
Knight stated: "The lending industry - save for a few stragglers - has moved on and we need public policy makers to move on with us.”
Knight also presented evidence to the effect that the average house price:earnings ratio was now outdated, due to the fact that this included incomes from non homeowners, and most mortgages were now funded by two incomes. Knight presented statistics showing that affordability, represented by initial mortgage payment as a percentage of gross and net income, is at one of its lowest points for 25 years. Moreover, with household formation and increased migration driving up demand, there was little to suggest a house price collapse unless interest rates, inflation and unemployment rose dramatically.
Concluding his speech, Knight also highlighted the consumer detriment being created by misleading ‘noise’ on lending matters.
He stated that public policymakers and opinion influencers have responsibilities when they reflect, respond and comment on the mortgage market. “The more temperate, considered and grounded in fact the comments are, the less harm will be caused to mortgage borrowers, particularly those who are vulnerable”, said Knight.
