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Is the FSA prejudiced against brokers?

The Financial Services Authority’s Mortgage Fraud Thematic Review was supposed to inspect lenders’ systems and controls for the prevention of fraud.

But listening to the findings being presented at the regulator’s Financial Crime Conference earlier this week, you would be forgiven for assuming that it was brokers, not lenders, who were under scrutiny.

The management of third-party relationships with solicitors, brokers and valuers forms a significant section of the review, which says that many lenders identified solicitors as their largest single source of mortgage fraud risk.

The review says: “One large lender considered solicitor fraud to be their greatest area of concern with approximately 50% of their mortgage fraud losses attributed to the actions of solicitors.”

However, when presenting the findings at the conference, Edna Young, strategy specialist for financial crime and intelligence at the FSA, spent far more time talking about brokers than solicitors and barely mentioned valuers.

She said that many lenders are not employing due diligence in the management of their broker panels, criticising them for having panels that are too large and for failing to carry out adequate checks on brokers.

Part of this focus on brokers rather than solicitors can be put down to the work that lenders have done recently to cut down their solicitor panels.

In July last year, Lloyds Banking Group announced it was to remove solicitor firms from its panel which have conducted low volumes of transactions, and since then the issue of upping standards for lenders’ conveyancing panels has been high on the Council of Mortgage Lenders’ agenda.

So it seems that the FSA is keen for lenders to be equally stringent when it comes to brokers.

Intermediaries should therefore be aware of the danger of being removed from lenders’ panels in the future, as lenders will no doubt want to demonstrate they have taken the FSA’s review on board.

But while the regulator may be right to demand lenders adhere to the same standards for brokers as solicitors, there could be a less impartial reason for the FSA’s apparent desire to penalise brokers.

The review states that many lenders identified solicitors as their largest single source of mortgage fraud, but includes no equivalent information on brokers.

Instead, the introduction to the section on brokers simply states that rogue brokers can present risks to lenders.

The review says: “Some of the FSA’s recent enforcement actions against brokers were triggered by intelligence that brokers were involved in organised criminal mortgage fraud rings.

“In our enforcement actions we also saw examples of brokers encouraging mortgage applicants to exaggerate their earnings to gain larger mortgage advances.”

While these practices may have been rife before the credit crunch, anyone in the industry will tell you that almost all of the rogue brokers were stamped out in the years that followed.

With roughly two thirds of the broker population exiting the market since the boom years, those that have survived have done so through sheer hard work and like to think that being approved by the FSA is enough to prove their credentials to lenders.

But it seems the FSA’s judgement is still clouded by what has gone on in the past.

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  • Luke Atkinson 28th June 2011 at 12:22 pm

    Is anyone surprised there is institutionalised bias in the FSA towards Banks? They are all ex bankers!

    Plus, with the reduction of intermediary numbers the levies from these sources have reduced massively and the banks are basically funding the FSA, why would you bite the hand that feeds you?

    There are some dodgy brokers out there, most made their money during the good times and from my experience, give no thought for the well being of their customers and and just see them as ”punters”, also, these so called ”brokers” have no or little understanding of the industry and are intellectually lacking as well as professionally and are simply interested in colelcting their excessive fees on completion.

    However, the majority are good at what they do, compliant, honest, non fraudulent and offer something to the consumer that the banks cannot, independant advice.

  • Daniel 28th June 2011 at 9:57 am

    Always hilarious to see ‘bobby’ pop up with his dramatic comments. The hard done by broker act is old hat, and very boring. No one has any sympathy for brokers because they absolutely pillaged the industry, as glorified administrators, when the going was good.

  • Jazzy Jeff 27th June 2011 at 1:30 pm

    Ah “bobby”! Nice to see you and your mindless scaremongering again!

    Anyway, what a load of old rubbish this article proves to be. “Ask anyone in the industry” eh Tessa? Well you clearly didn’t ask anyone who works in mortgage fraud!

    Whilst a huge amount of fraud relates to back book lending, there are still many, many brokers out there carrying out the same practices as before the credit crunch, so to say it doesn’t exist is, at best, naive.

    As for the distinction between broker and solicitor fraud, what do you think happens when you reduce the size/vet your solicitor panel? The fraud doesn’t go away, it comes back elsewhere: i.e. – branch staff, valuers and BROKERS.

    Oh, and “Mike”? “Police the industry”? Hahahahaha! Do me a favour.

  • bobby 27th June 2011 at 9:51 am

    The FSA want every single broker eliminated from the mortgage landscape and won’t rest until it happens. Make no mistake this is their agenda. Their doing pretty well so far.

  • HW 25th June 2011 at 12:13 pm

    Whilst I believe brokers do not receive a fair deal from the FSA, I don’t believe they are specifically targetting brokers, their incompetency and posturing effect all.

  • Steve Lupton 25th June 2011 at 10:15 am

    The FSA could be instigating a potential problem by puttiing pressure on lenders to use the same trategy as they have done with solicitors to reduce their panel of Brokers.

    If lenders remove the brokers who submit fewer cases, this is going to penalise the truly independent mortgage brokers who use the whole market place, whereas the mortgage brokers who use a lending panel are naturally going to submit more cases to those lenders. The lenders should consider quality of cases submitted, however this would mean lenders putting in place set criteria rather than as it appears at the moment ‘seeing which way the wind blows’

  • Ian Griffiths 24th June 2011 at 7:02 pm

    As the FSA have a workforce mainly built up of Ex-Bankers, it is no wonder that they despise Brokers?

    I think the FSA are a corrupt organisation, preferring to side with the Financial Institutions rather than police them.

    For example, I haven’t seen any mention of Hector Sants involvement (or lack of) in Interest Rate Fixing while working at UBS. How’s that for brushing issues under the carpet to keep them sweet?

  • Mike 24th June 2011 at 6:05 pm

    I generally think they are biased against brokers as we are removed socially and work based from them. The FSA operate a revolving door Practise with banks in that they are not only on social terms with the ‘movers and shakers’ but that they each ‘pollenate each other’ in employment terms. It is hard to accuse your ‘mate’ of wrongdoing but easy to accuse further removed brokers. In practise, it is the broker who is diligent, crosses the ‘t’s and dots the ‘i’s but the banks / lenders who flaunt their own lending terms. Dual pricing is one of the babies of this with the banks trying tonvut brokers out of the loop, they not only offer ‘cheaper’ deals bit I would argue that the procuration costs are more expensive. They give higher multiples, require lesser proof and with the FSA not supervising them closely enough, they are getting away with it. I can remember being at a ’round robin’ mortgage event where one if the B D Ms told us that they only needed 1 years accounts as proof of income and that they didn’t actually ask to see them so that a client in theory could have Bern self employed only weeks and they would get their mortgage. My business college and I were aghast, said nothing, but in the car bact to our offices agreed we were horrified and it futher cemented our resolve to ensure that WE would always ensure proof of income and thus affordability as ‘the buck stops with us’! In any dispute (like mow), the banks would point the finger at us, and try to blame us, so wecwould always have to retain proof on our files regardless of ‘fast track’ or self cert. (ALWAYS COVER YOUR BACK)! In may closing words on this, I would say that brokers add value for clients, police the industry, generally keep the lenders on their toes (by recognising if a client can afford the mortgage etc. and keeping them competitive by brokering the best and most appropriate deals) and to the FSA’s shame, are honest!!!! I challenge the FSA to consult IFAs & Brokers when doing their research and learn from us what good practises are and what poor practises the banks / lenders are doing. Remember, may of us left these bodies as we could not work under their deceitfulness & bad practises.

  • AJK-Kop 24th June 2011 at 5:09 pm

    The FSA know brokers are an easy target to hit! they (FSA) need to spend some time at high street branches of banks and building societies to get the true facts of whats going on – eg. high pressure selling over the counter, making customers feel uneasy and offering fast track mortgages- I ve seen cases ! FSA get your eyes tested and smell the coffee- becuase its brewing right under your nose!

  • Maurice Edgington 24th June 2011 at 4:41 pm

    My personal opinion; I do not think that the FSA is currently specifically against brokers but that their work on fraud is based on cases that took place up to 4 years ago. Judging by how long it takes for fraud to come to light plus the process to track down the culprits and bring them to account. Therefore I see a case of the FSA in its reviews or statements perhaps not making it clear that brokers were involved in quite a number of fraud cases but not necessarily new cases recently.