Over the past few weeks, we have concentrated on responding to CP146, last week we had a look at HM Treasury's view on the regulation of general insurance and, in the next few weeks, we intend to focus on the CeMAP deadline of December 31 2002.
To recap on the purpose of this column, it is targeted at those intermediaries who are actively involved in the mortgage market and, in addition to the mortgage itself, these articles cover the sale of related protection-only insurance products such as buildings and contents, payment protection and term assurance.
I am not qualified to talk about investment-linked mortgage repayment vehicles such as pensions and endowments, although I suspect IFAs and tied agents who do sell these products don't need me to fill in any gaps for them, whilst other mortgage intermediaries are happy to have avoided legacy problems.
I have no ambition to become an agony-aunt, dealing with any question that is thrown at me. There will no doubt be some real humdingers of queries, eg. a Part XX-exempt professional person such as a solicitor advising on a UK property to be purchased by an ex-pat, funded by a shared-appreciation foreign currency loan. Without spending 10 hours reading up on the small print, I haven't got a clue as to the regulatory implications.
My focus is on mainstream mortgage brokers and the matters that will affect them. This will involve some digression into new areas such as home reversion plans, where any broker arranging a lifetime (equity release) mortgage will be required by the FSA to mention the alternative of a home reversion (sale of property) scheme and to take into account the possible loss of means-tested benefits.
We must also keep in mind a clear picture of the self-regulatory requirements policed by the MCCB and the GISC in the run-up to FSA statutory regulation in October 2004.
The hot topic of the moment is of course CeMAP (or equivalent), and in particular those brokers who will not have obtained the necessary qualification by the end of the year.
This is not going to be a small band of a few hundred brokers. Accordingly to figures published by the MCCB itself, there could be up to 20,000 unqualified advisers returning to work on January 2, representing around 50% of the total mortgage broker population.
Alarm, if not panic, must be spreading through the ranks of the MCCB and the lender community.
It is hard to envisage a climb-down on the deadline of December 31, as the MCCB has stated, repeatedly and categorically, that this will not happen. It would be a gross insult to those brokers who will be qualified at that date.
That so many brokers will remain unqualified is surprising, given the amount of media coverage in the trade press throughout 2002. It could well be there is a serious overload of information on too many subjects at the same time, leading to an air of complacency and apathy.
Anecdotal evidence suggests that many brokers will 'believe it (whatever it may be) when it happens', not before.
In recent market research published by the monthly Mortgage Finance Gazette, one broker commented: “My lack of action is due to a lack of clarity about what is required. When it is clear what is needed, then I will act. It is easy to waste time and money preparing for something that may not happen in the way it was planned.”
Fair enough. The broker was citing the debacle surrounding the GISC and its enforced climb down on its controversial rule F42.
He might equally have been commenting on the government 'policy' of brokers' not being held accountable for their mortgage advice one minute, then, the next minute (December 12, 2001) finding they jolly well are.
To muddy the waters further, we now have scare-mongering by the CML's Michael Coogan about the double-whammy of costs facing the UK market if the FSA regulations are implemented in October 2004 and new European mortgage regulations need to be implemented before the end of 2005.
On the simple premise that Michael does not want, or expect, the European timetable to be speeded up at his behest, presumably he now wants to see the FSA regulations being held-up and rolled into the European legislation at the later date.
Can you blame brokers for their head-in-the-sand attitude to both self-regulation and statutory regulation?
But I fear there will be a rude wake-up call to a lot of brokers on January 2 when they go back to work – unqualified – and realise that the December 31 deadline had not been moved, and indeed is now behind them. It has happened.
So what options are open to unqualified brokersother than to roll over and die ?
In the next four issues we will be looking in detail at each of the available options. See box for details.
An unqualified happy New Year?
What to do when you go back to work on January 2 without having passed your CeMAP (or equivalent) examination:
Option 1: Pretend nothing has happened
Continue to advise your clients and submit mortgage applications as normal. Think about what lies you are going to tell the horde of BDMs who incessantly turn up on your doorstep. Make the most of the three months before you need to reregister with the MCCB on April 1 – that's when you hit the brick wall.
Option 2: Become an introducer
Refer your clients to a qualified broker, either a local contact who may pass you reciprocal business, or one of the many organisations that are already saying that they will “make the sale for you, and pay out the full procuration fee”.
Option 3: Downgrade to “information-only”
Stop giving advice to clients and instead provide the Level 3.1(b) service which is “information on the different types of mortgage product”. But, of course, this may only be pretence, and you carry on quietly giving advice and hope nobody catches you out. There are serious implications.
Option 4: Become supervised
You can continue to provide full advice to your clients and maintain your normal working practices. But all recommendations of a mortgage product must be signed off by a Supervisor – who must be a qualified and competent person.
Each option will be evaluated in detail in the next four issues of Mortgage Strategy, and we will also look at what third-party services are on offer to unqualified brokers.