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Market ignores distribution danger at its peril

In a recent article I expressed concern about mortgage lending and distribution in 2009.

My concerns were based on a number of facts. First, most brokers fined for mortgage fraud or mis-selling in the past few years were directly authorised.

Second, these fraudulent brokers were submitting applications through mortgage clubs that took no action to vet the brokers or transactions.

And third, some lenders allowed DA mortgage clubs onto their preferred panels simply because of the volumes of business they provided.

I did not expect my article to cause widespread indignation but I certainly did not expect the half-hearted agreement and ‘so what?’ response it generated.

Mortgage clubs should take more responsibility. If you ask clubs why they do not vet brokers who join their response is often ‘It’s not what we do’.

That’s not good enough. We have rejected around 900 applications from mortgage advisers in the past three years. For a variety of reasons, and in compliance with Financial Services Authority guidelines, we could not take the risk that they might, at some point, mis-sell products.

Most of these went down the DA route and transacted business through mortgage clubs. Doesn’t that stink? Clubs should take more of a role in preventing cowboy brokers from continuing to trade.

But lenders are culpable too. They should care that rogue brokers are continuing to place business with them via clubs. It’s not morally right for them to shirk responsibility.

They are chasing volume despite their protestations, as is proved by the emergence of preferred panels of DA broker clubs.

If lenders were serious about wanting prime business they would make more demands on clubs and the brokers who use them.

The FSA finds it easier to monitor appointed representative networks because of the layers of security in place so why don’t lenders place ARs on their panels? Because they don’t do enough business.

Good networks ensure advisers are properly trained and that all business has been through compliance checks. Why would lenders choose unvetted brokers and transactions over safe, quality business? Volume, that’s why.

We’re paying for the FSA to clean up after some rogues but as an industry we could help clean it up before transgressions take place.

I will keep pointing out this glaring abuse and ranting that the FSA should look into the question but it seems nothing will change.

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