LONDON: Britain's financial regulator the Financial Services Authority said it has identified "significant" failings on the part of small mortgage brokers when they advised and sold home loans to borrowers, who have to self-certify their incomes.
Self-certified mortgages are sanctioned by banks to self-employed customers or those who are not able to prove their income. Unlike in a standard mortgage, such borrowers need not have to provide evidence of their income.
Stating that the FSA has come across with weaknesses in the prevailing system, FSA's managing director of retail markets Clive Briault said corrective measures are required on affordability and suitability checks and on the record keeping of the advice given.
The FSA had carried out supervisory checks in 10 banks and on 249 prospective borrowers. It found that while the banks had beefed up their checks on self- certification mortgages to detect fraudulent applications, in some 47 per cent of the 249 cases, the brokers could not prove that they had correctly assessed affordability. In 36 per cent of the cases, the paperwork did not establish why a self-certified mortgage had been recommended by a broker as suitable.
In incognito shopping at 41 brokers, FSA staff, however, found that there were no
fraud involving them and the borrowers to inflate the latters' incomes on application to secure larger mortgages. But, three firms were found to be ready to discuss with customers how to inflate their salaries. Briault said this is an encouraging sign.
The FSA is particularly happy with lenders bringing in checks and controls in their systems to detect fraudulent mortgage applications.
The FSA is following up with the mortgage brokers, the problems it found during the investigations.
Meanwhile, the Council of Mortgage Lenders said lenders had taken effective measures to ensure that self-certification mortgages were sold appropriately.
The mortgage segment suffered in the third quarter with a record number of consumer bankruptcies and slowdown in the property market. Individual insolvencies increased by 12 per cent to a seasonally adjusted 17,562 between July and September, the highest since 1960.
Posted
on : Tue, 15 Nov 2005 11:25 GMT | Mortgages News
By : Pippa Fielding
|
