The biggest issue the FSA has highlighted in the mortgage market over the past two years is not widespread deficiencies in practice or how badly customers are treated but the lack of documentation that brokers keep.
It’s mentioned over and over again in FSA reports looking into the work of brokers. The regulator often does not doubt that the correct processes have been undertaken, but there isn’t the necessary documentation to prove this. Lack of evidence is the problem for brokers.
This worries brokers – something I noticed during the recent Mortgage Business Expo. What do they have to do to prove that they have done the right thing? And how can they ensure they have the evidence for each case and provide this when necessary?
This is especially important in sub-prime, where the FSA has highlighted the need to collect all relevant information on a borrower including credit history, debt position and income and expenditure to assess affordability. There then has to be evidence of how this information was used to inform advice.
Technology can provide much of the solution. Paper records can be lost or damaged but this is less of an issue with electronic records. An application sent electronically will automatically create a record that can be easily accessed and there is virtually no chance of electronic records being misplaced, damaged or being inaccessible.
And because the information the FSA requires is likely to match up with the information lenders require for their underwriting process, such records will go a long way to proving that relevant information was collected.
This is not to say that intermediaries do not need their own systems for ensuring they collect all relevant information – remember, it is the broker who is responsible for advice, not the lender.
But using lenders with advanced electronic application systems means brokers have evidence of the fact that much information was collected and used in the application. Intermediaries can then sleep a little easier rather than worrying about the day the FSA comes knocking.