Lenders may be forced to explain client rejections
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ANNIK LAMBERT, BORROWERS COULD SUE
Mortgage lenders could be forced to disclose why they have refused a borrower’s mortgage application under new European Commission rules.
The EC is gearing up to launch its draft proposals in March and implement them at the end of the year.
As they stand, the proposals would make it a legal obligation for lenders’ to disclose their reason for refusal.
Annik Lambert, secretary-general of the European Mortgage Federation, revealed details of the draft proposals at a Mortgage Strategy & Regulation conference hosted by Infoline last week.
She says that as well as having to disclose why applicants have been refused, lenders must also carry out credit assessment tests which go beyond what is proposed in the Financial Services Authority’s Mortgage Market Review.
Lambert says these tests could pose a problem for lenders if the EC makes it a legal requirement that lenders cannot offer a mortgage if it is unaffordable for the borrower, which is what is being proposed.
She says this would give consumers the chance to sue their lender if they defaulted on their loans, arguing that they could not afford the mortgage.
Lambert told delegates: “The proposals could be a problem because they come with the legal obligation for lenders to deny credit to consumers if the outcome of the credit assessment is negative.
“But if the borrower passes the assessment it could be easy for them to go back to the lender and say they are defaulting and it was irresponsible lending because they cannot pay the mortgage.”
Ray Boulger, senior technical adviser at John Charcol, says the plan would mean lenders would no longer be able to offer vague reasons for turning away clients.
He says: “Most people assume they have been turned down for a mortgage because of a bad credit record. These proposals will force lenders to reveal why they have turned down an applicant.
“I’ve heard of cases where a lender puts one case through on a Tuesday and refuses another on a Friday because it has reached its quota. This proposal will make lenders look carefully at why they are refusing borrowers.”
He adds: “Lenders will no longer be able to hide behind the Data Protection Act.”
Lambert also revealed the draft legislation still includes the proposal to replace the Key Facts Illustration with a European Standardised Information Sheet.
But this will not include a 10-day cooling-off period on mortgage contracts as had previously been suggested.
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