As Whitechurch is a network that does not insist on members using a particular mortgage sourcing software provider, I read with interest the views of Mortgage Brain and Trigold with regard to the FSA's final rules on accuracy of information provided to customers in the Insight section last week (Mortgage Strategy October 27).
My interest was further compounded by receipt of the October 2003 Mortgage Code Compliance Board newsletter, which in its guidance notes reported a recent £12,000 award made by the Mortgage Code Arbitration Scheme against a firm that had relied on information provided by a sourcing software company. The award was granted after the firm in question had purported to have sourced from the whole of the market. However, due to inaccuracies within the software it had not considered a cheaper alternative mortgage to the one recommended. It would be interesting to know whether the software company involved will be making a contribution toward the costs of the award.
I would recommend in this instance that as far as sourcing software systems are concerned, adopt the procedures which will be required under FSA regulation now as the non-statutory regulator has teeth in this area. FSA final rules mean that post-Mortgage Day principals will become legally responsible for the accuracy of their appointed representatives' work. The FSA will, however, allow some tolerance within its rules for illustrations provided by advisers.
The rules state a firm must be able to show that it has taken reasonable steps to ensure that any illustration is “clear, fair and not misleading”. Mortgage intermediaries must also take reasonable steps to ensure that their illustrations are accurate by no more than the greater of 1% or £1 and the stated APR figure cannot be understated by more than 0.1%. There is no such tolerance for illustrations provided by mortgage lenders.
Using an accurate sourcing software system has always been and will continue to be an absolute must for any mortgage adviser. Companies who have taken the lead, such as Mortgage Brain and Mortgage 2000, in developing their own mortgage sourcing compliance functions in anticipation of the future statutory regulation should be applauded, and they will no doubt find themselves busy with enquiries from interested advisers.
In light of the recent MCAS award, your choice of software sourcing system should not be delayed until next year. You should be happy with the accuracy of the mortgage product data within your sourcing software system now. You cannot rely on a caveat within your illustration that mitigates any responsibility for the information contained therein. Statements such as 'whilst great care has been taken in compiling this information, no liability can be accepted as all rates and conditions should be checked before finalising any arrangements' are meaningless, since as an adviser you are responsible for ensuring the accuracy of the illustration you provide. Indeed, by using a sourcing software system you have an inherent responsibility to regularly monitor the information it contains and you should also take steps to rectify any faults. In reality, this means you must know the lending policy and underwriting criteria of all the lenders you use, together with individual product specific knowledge.
In the circumstances, I would recommend you contact your lender business development managers and request visits as soon as possible. Every time you place a mortgage, contact the lender to check the features of the deal with those on your illustration and also check on the products continuing availability. While this is more arduous than relying on the sourcing software system as is the current norm, it is less expensive than a future MCAS award against you. My hope is this MCAS award does not result in a flood of complaints regarding mortgage advice provided via sourcing software.
I also have a further concern with regard to professional indemnity insurance costs and excesses. With these already on the rise, will this award push them even further upwards? In an ideal world, the solution to the problem would be software with a 100% accurate database providing pre and post-Mortgage Day compliant illustrations. If anybody knows of such a system, please email me at the usual address.