The Financial Services Authority has launched a far-reaching probe into the way self-cert mortgages are sold, sparking fears the regulator will clamp down on the sector even further.
In 2003, on the back of the BBC’s infamous exposé in The Money Programme, the FSA looked thematically at the risk of financial crime arising through the mortgage application process. In the programme the BBC highlighted how easy it was for customers to falsify their income and obtain loans well beyond their financial means simply by declaring themselves self-employed.
A number of lenders were put under the spotlight for their shoddy sales practices, most notably Birmingham Midshires. After the programme was aired the FSA launched an urgent review of the sector but despite the furore following the broadcast the number of self-cert loan sales actually increased. However, the programme led a number of lenders to change their sales practices and prompted BM to stop selling mortgages through its branch network.
Now Mortgage Strategy can reveal that the FSA has launched another probe into the sector and has written to at least 15 lenders to find out what changes they have “instigated to their systems and controls in relation to self-certified and fast-track lending over the last 18 months” to find out their views on developments in the sector.
The FSA defines fast-track lending as a process “where the lender chooses not to seek full income verification as long as credit quality is judged to be high and the security margin good”.
Specifically, the regulator is asking lenders whether or not their firm has reviewed self-cert lending or fast-track lending and if so, what their conclusions or actions were. It also wants to know the size and characteristics of the market, including how it has developed in the past few years.
It wants to know how lenders have changed their behaviours or control mechanisms and what impact this has had on the market and consumers.
Industry sources also let slip that the regulator started initial face-to-face discussions with lenders last week when Susan De Mont, FSA manager of mortgage policy, addressed the Intermediary Mortgage Lenders’ Association on Thursday.
Helen Thomas, director at Myrddin Mortgages, Carmarthen, West Wales, says: “It’s not surprising the FSA is looking at self-cert again. These days loads of people want to self-cert as income multiples are so low and property prices so high. The problem is that many brokers will self-certify a client’s income for no reason other than if they didn’t they would lose the sale because the client won’t fit normal criteria.
“It’s not always a question of what a client’s income is but rather, can they afford the monthly payments? The only time incomes should be self-certified is when clients genuinely have no way of proving their income, such as self-employed people or those with other avenues of income. If you are doing self-cert for any other reason, you are committing fraud.”