View more on these topics

Many sub-prime brokers are not selling by the FSA book

An alarming number of small mortgage brokers are not up to scratch when it comes to advising on sub-prime, a compliance review by the Financial Services Authority has revealed.

The regulator says it found too many cases in which firms were unable to show that they had followed the required procedures relating to suitability.

It visited 31 small brokers active in the sub-prime market and looked in detail at 210 case files to assess whether advisers were taking reasonable steps to ensure that recommendations to take out sub-prime mortgages were suitable to the circumstances of the relevant customers.

While the FSA says it found examples of good practice too, in 60% of cases insufficient information was obtained about the customer in key areas relating to the sale of sub-prime products. In 80% of cases, there was a lack of evidence to show how the recommended sub-prime product met the customer’s needs.

And in 67% of cases that involved debt consolidation, firms could not demonstrate that they had taken account of the additional requirements related to debt consolidation mortgages and so it was unclear whether the recommendation was appropriate.

Andy Watson, head of the mortgages and credit union department at the FSA, says: “Where we find examples of possible inflation of income, we make further enquiries which may lead to referrals to enforcement.”

Three firms were identified as potentially assisting customers to obtain a mortgage when their income would not meet the lender’s criteria, such as by inflating income on an application form.

These firms have since been referred for further investigation.

Another review of small firms active in the sub-prime market is planned for early next year.

Martin Reynolds, head of sales at BM Solutions, says: “If the FSA’s suggestion that poor record keeping could be a big part of the problem is true, it is imperative that brokers address this issue so as to protect themselves from mis-selling allegations in the future.”

And Gary Dixon, managing director of Compliance.co.uk, says: “The FSA has opened a can of worms as inadequate paperwork and not following the correct procedures are strong indicators of bad practice elsewhere.

“The sub-prime market has a poor reputation in many circles and what worries me is that the good advisers in this sector will have their reputations blemished by the bad practice that seems prevalent in some firms.”

Recommended

Market Watch

Swaps continued to edge lower but all in all it was a pretty slow week for rates changes. One-year money is down 0.03% at 4.46% Two-year money is down 0.01% at 4.39% Three-year money is down 0.01% at 4.39% Five-year money is down 0.03% at 4.40% The Woolwich wins hero of the week for launching […]

Buildloan supports self employed with self-cert

BuildLoan, the intermediary arm of self build and renovation specialist BuildStore has launched of a raft of products from The Mortgage Business aimed at people who are self employed. All four of the new TMB products are self cert, which means they are suited to people who are contract workers, self employed or freelance. Each […]

Preferred responds to intermediary feedback

Preferred have made several changes across the business following their second round of QualityCircle feedback sessions earlier this year.John Webster, managing director, says: “The Quality Circle sessions gaveintermediaries the opportunity to tell us what they thought we weredoing right and – more importantly – to highlight any areas where theythought we could make improvements. We […]

Home of Choice plumps for Trigold

The Home of Choice Partnership has chosen Trigold as the exclusive system for its network members. Trigold has developed a customised version of its Prospector AAA system for Home of Choice that includes branding, panels and proc fees, and also shares client and product information with Home of Choice’s client management system. The Home of […]

Building long-term relationships

Call us old fashioned, but we want to get to know you personally. That’s why we give you a named case manager and underwriter to look after all your cases from start to finish. Your underwriter will happily give you their number, so you can ring them directly with any questions you have. And your […]

Newsletter

News and expert analysis straight to your inbox

Sign up