There is no conflict of interest in helping lenders market self-cert products through a mortgage club and acting as an expert witness in litigation cases involving this type of deal.
Expert witnesses are employed to help the courts. They are not advocates for whichever side employs them. Most professional experts work for claimants and defendants and should not make general comments – their role is to consider the facts in individual cases.
Expert witnesses provide assistance by analysing cases against the standards that competent lenders would have adopted at the time in terms of policies and procedures. They compare individual cases against lenders’ underwriting requirements and the regulatory regime.
When it comes to self-cert, since the last round of lending litigation in the mid-1990s I have argued that it is a justified product in certain circumstances.
I know from my time on the disciplinary committee of the industry’s old self-regulatory body, the Mortgage Code Compliance Board, that it critically appraised and accepted self-cert mortgages. More recently the Financial Services Au- thority did the same. The FSA was probably the first organisation to put a figure on how many cases legitimately meet self-cert criteria. In February 2004 it sent a letter to the chief executives of all lenders stating that genuine self-cert accounts for between 6% and 8% of the mortgage market.
It also listed controls that lenders should adopt, including affordability and plausibility checks plus sound record-keeping.
It is not possible to discuss individual deals or the volume of cases involving particular lenders since that information is not in the public domain until cases come to court. But there was a self-cert case in the courts recently in which the judge stated that there was evidence the client had been steered towards giving misleading information.
Given the FSA’s attempts to eliminate mortgage fraud, you don’t want to hear such a comment in respect of one of your cases. After all, who knows where lenders will look to recover losses from next?
This is where Treating Customers Fairly helps brokers. A cornerstone of the TCF regime is appropriate management information. Brokers with effective MI should be able to recognise if their self-cert sales exceed the FSA’s figure. If they do, firms can review their procedures to ensure they are not selling the product inappropriately. This proves that TCF can benefit brokers as well as clients.