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Can we learn from FSA sub-prime probe?

Figures released by the Financial Services Authority last week show a number of small mortgage brokers are not up to scratch when it comes to advising on sub-prime.

The regulator says it has found too many cases in which firms are 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 recommendations to take out sub-prime mortgages were suitable to the circumstances of customers. In 80% of cases there was a lack of evidence to show how the recommended product met the customer’s needs.

So, Mortgage Strategy asks: “Do you think brokers are advising correctly on sub-prime products or is there more work to be done?”

Jeff Knight, GMAC-RFC This should be a message to everyone, not just sub-prime brokers. Good record keeping is imperative and the online systems provided by the leading lenders can help. I’ve always said online systems remove the complexities of sub-prime and free up time for the broker not only to deal with compliance issues but also to write more business.

Mark Leaper, Vesta Packaging By and large intermediaries have a good grasp of the sub-prime market. I would be interested to see the methodology used by the FSA in compiling this report because Vesta’s brokers have access to technology that ensures the products offered are accurately matched to the applicant’s circumstances. I would think equally good systems are available through most of the industry’s top packagers.

John Prust, Southern Pacific Mortgage Limited The FSA report stresses that many of failings are related to poor record keeping so it is difficult to establish the level of consumer detriment. The required level of record keeping must be better understood by advisers. A briefing note has been published by the FSA to help brokers with good practice in future, and further reviews are planned. This is a case for encouraging continuous improvement.

Duncan Berry, GE Home Lending While these findings are worrying, they must be kept incontext.The FSA’s investigation took a sample of just 31 small brokers across the sub-prime market and looked at 210 case files. It uncovered a niche areain need of serious improvement and I am pleasedto see some clearactionfrom the regulator.But this report must not be used to tarnish the reputation ofsub-prime brokers as a whole.


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