Mortgage brokers to be personally accountable to FSA
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Mortgage brokers will be personally accountable to the FSA under new proposals, which will also see lenders take ultimate responsibility for affordability and self-certification loans banned.
Earlier this month Money Marketing revealed that the FSA was likely to place greater responsibility for affordability on mortgage lenders as part of its market review.
The proposed mortgage market reforms set out by the FSA today stopped short of imposing level procuration fees for mortgage brokers. The regulator did say that in the run-up to the credit crunch, the high commissions paid to advisers selling sub-prime loans contributed to borrowers being sold unaffordable mortgages, although the FSA says these products were only rarely missold.
The regulator says it is considering asking lenders to supply it with information on the income earned by brokers on mortgage deals.
The FSA says its proposal for mortgage brokers to be individually registered would provide a public record of all authorised mortgage intermediaries, limit the ability of individuals to hide from regulatory penalties and help the regulator to track individuals throughout the industry.
The FSA also argues against the retail distribution review being applied to the mortgage market, describing the mortgage advice as simpler than the market for retail investments.
The suggested reforms would ban arrears charges where the borrower is already making repayments and will prevent lenders from offering products with “toxic combinations” of factors that put the borrower at risk.
The FSA also proposes buy-to-let regulation should be part of its remit.
FSA managing director of supervision Jon Pain says: “The mortgage market has seen extraordinary upheaval over the last 18 months and whilst it has worked well for the vast majority of borrowers, some have suffered great financial distress. We recognise that we need to bring about a step change in regulation and we need to act now to address the issues we have identified.”
Pain adds: “The paper sets out the main findings of the FSA’s comprehensive analysis of the mortgage market. It clearly shows a rapid explosion in mortgage products; the emergence of high risk lending strategies which typically focused on higher risk borrowers; relaxed credit standards; and a mutual assumption by too many borrowers and lenders that the good times could not end.”
He says the reforms will ensure that the mortgage market works better for consumers and that it is sustainable for firms.
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Readers' comments (24)
DAVID | 19 Oct 2009 9:23 am
It would be refreshing if the FSA actualy sat down with brokers who are at the coal face rather than faceless banks that have been ripping people off for years. The vast knowledge that the majority of brokers have would enable a mortgage market to thrive while ensuring all parties benefit in what is currently a very depressed industry.
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Evan Owen | 19 Oct 2009 9:43 am
Why was the 'approved persons' regime not applied to mortgage and insurance business at outset? Was it anything to do with the banks and providers not wanting it?
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Ian Mason | 19 Oct 2009 9:47 am
is this just another way for the FSA to confuse matters and make more money? Individal registration will doubtless be an extra fee and why leave confusion as to who is ultimately responsible for affordability presumably so they can accuse both parties
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Mr Smith | 19 Oct 2009 9:48 am
Its all a bit too late the market has moved on and this just shows how not in touch they are
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Chris Mayor | 19 Oct 2009 10:05 am
First of all, I thought we were accountable for our advice? It is the high street banks that the regulator needs to be worried about, as they call people in for a financial review, and then " no advice was provided" - their KFI. Also, commission is readily available, on any KFI. My network has always insisted on lender KFI's only, so help yourself! I wanted all the sub prime looked at closely from the start. The FSA had a terrific opportunity, when M Day came, 31/10/2004. We had a years warning ( approx) and "proper" brokers attended many "Roadshows" often with an FSA speaker, as we wanted to know the implications. The FSA should have searched its register and gone after anyone that attended 1 or less, that's where it would have found the poor brokers, who did not care about regulation. Sub prime should be the last refuge of a broker. We got most of our cases through with a main lender and a really good argument. I have met many brokers who shook their heads at this, but I thought we were supposed to pretend that it was for us or our family. Yes we earn less, but it is the best advice, helps reputation and us sleep at night.
Please remember, brokers can only recommend what is offered.We are called "Intermediaries" and should be that. We should do the affordability checks first, convince the lender that this is a good case, and then the Lender does the same. A safety net for all, as it was meant to be.
If only common sense was common!
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Melvyn Day | 19 Oct 2009 10:18 am
I joined the credit industry in 1972 and was soon given underwriting authority. Increases were based on prudent lending and experience. However much to my surprise I found a rather relaxed culture when I joined a mortgage brokerage in 1988 with the Bank of Scotland very much a dominant player in the sub prime market.
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Man in Black | 19 Oct 2009 10:34 am
Oh look. FSA's response to its failure of regulation is....more regulation.
The reality is that we are in mortgage meltdown because the Bank of England targeted CPI inflation and ignored the volume of money and credit being produced.
Excess credit from the fractional reserve banking system sloshing around is what caused lax lending criteria, not the other way round. Micro-managing transactions has failed once and would fail again under similar circumstances.
Set the BoE on targeting the Money Supply. Scrap mortgage regulation. Lay off the pen-pushers in Canary Wharf rather than expanding them. And of anyone commits mortgage fraud, let's have jail sentences and, for all the obviously non-UK nationals, deportation.
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Mike LeGassick | 19 Oct 2009 10:53 am
I would echo David's comments above. If the FSA actually listened to seasoned mortgage advisers, they would get a better handle on how the real world works and could then put into place a robust and sensible regime that would benefit and help protect all.
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Ian Keiller | 19 Oct 2009 10:56 am
It is not the mortgage adviser who decides if a mortgage product is suitable, it's the provider ultimately. If a mortgage intrmediary recommends a particular product and the application is accepted who would be held to account under the new proposed rules?
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Chris | 19 Oct 2009 11:16 am
Again the FSA is responding to newspaper reports and targeting brokers. The majority of us still trading is because we do the job properly and check affordability whether the lenders wants proof or not. It is not the self-cert cases with 25% plus equity thats the problem. The lenders are causing problems with greed over interest rates, look at N Rock charging 5.49% base rate and the rate for the Halifax and Abbey on the 90% product. They are all unwilling to help people who have lost jobs or overtime by refusing either interest only concessions or repayment holidays even with plenty of equity.This and the adverse market are the problems not our everyday clients.
I agree with David the FSA needs a reality check.
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