Lloyds could vet one in 20 interest-only cases
Share
Lloyds Banking Group is to check one in every 20 interest-only applications it receives from brokers, Mortgage Strategy understands.
The lender announced last week it is to randomly select interest-only cases and ask brokers to provide paperwork which evidences the repayment vehicle stated on the mortgage application.
It has not confirmed how many checks it will perform, but sources say it will be one in 20. The sampling will be on cases submitted after October 15 2010 and will be carried out after the offer stage.
The group says as a responsible lender it is important for it to undertake random sampling, which is a process already in place in other areas within the group. It has provided brokers with a list of documents they will need to evidence repayment vehicles.
If brokers are unable to satisfy a sampling request, Lloyds group says it will contact clients directly to request the appropriate document-ation. If this is not received, it may decide to review the original application.
A spokeswoman for Lloyds group says: “In May, the group announced that it has conducted a strategic review of interest-only lending.
“We are now looking to implement the change that we communicated in May - introducing random sampling enabling us to ensure the existence of an appropriate repayment vehicle.”
Robert Sinclair, director at the Association of Mortgage Intermediaries, says he can understand why it has made the decision but Lloyds group might not like what it finds.
He says: “It’s going to be an interesting challenge for it and it may be a case of be careful what you wish for. It will need to decide what it is going to do if the proof of a repayment vehicle cannot be provided.”
He says if it makes an offer to a borrower and then withdraws it at the last minute it could raise questions about Treating Customers Fairly.
Last week Sinclair criticised the Financial Services Authority for being irrational in its thinking towards interest-only mortgages and says the regulator has yet to address the root cause of the financial crisis.
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
