Watchdog or wise owl?

Today's announcement by financial watchdogs that they'll make lenders apply an affordability test to mortgages will be welcomed by many people.
But hold on a minute. Surely that was something the banks and building societies were already doing?
After all, would you hand over a small fortune to someone who hadn't given you concrete evidence that they had the financial wherewithal to pay it back?
You might not. I'm afraid the banks did.
The announcement by the Financial Services Authority goes right to the very heart of why the boom in credit blew up in our faces.
The reason why so many banks and other financial institutions cheerfully handed out mortgages like confetti was that they would get their money whether you could afford your homeloan or not.
How come? Because they were selling your loans on to investors. They made their money from fees paid every time a mortgage was sold, not from the long-term income stream of repayments. In some cases, their staff were paid bonuses according to the numbers of mortgages they churned out
The banks therefore had a vested interest in signing up more and more mortgages, and the bond of trust that used to exist between lender and borrower became an irrelevance.
The result? Your mortgage hinged on the market for Collateralised Debt Obligations rather that the opinion of a wise building society manager.
You can't un-invent the financial markets that bought mortgages and other loans; for all sorts of reasons, they remain important.
So the FSA is now trying to impose regulations that mean lenders must make sure borrowers can afford what they are taking on, whether it stays on the lender's books or not.
Welcome as the move may be, it raises an important question: will the banks and building societies who hand out homeloans decide they are simply going to stop lending to anyone who isn't a gold-plated safe bet?
And exactly how do you prove people can afford something in an economic environment where nothing is certain?
You can't. Regulations are never foolproof, and someone will find a loophole somewhere.
So what can the FSA and the banks and building societies do? Try this for size: tell borrowers they can't have a penny unless they’ve been questioned by a wise old owl.