To focus on increasing levies for IFAs in particular and on the industry in general is facile, in my view. No, rather like the Treasury rakes in £10,000 an hour from speed cameras while simultaneously turning half of Britain’s motorists into criminals, the FSA appears to be trying to raise money by issuing fines against firms.
Quite apart from its recent £1.4m raid on Morgan Stanley’s coffers, the regulator appears to believe that mortgage brokers and lenders are fair game too, fining several of them to the tune of £300,000 in the last four months, several during the past few weeks alone. At least half a dozen more have been banned or reprimanded. Last year, the number of mortgage-related fines ran to more than £2m.
Now, make no mistake, I believe in fining individuals and companies who have done wrong. The firms concerned were variously found guilty of all sorts of offences, including recommending inappropriate loans, aiding and abetting borrowers who were inflating their incomes, even fraudulently applying for vast loans on their own or fictitious clients’ behalf.
There is no question in my mind that a large part of the blame for what is happening now – of defaults by borrowers on mortgages they should never have been granted in the first place, the near collapse of some lenders whose unpaid debt mountains are growing at a rapid rate, of credit rationing across the entire market – much of this is the responsibility of brokers, at least in part. They were, after all, part of the system of checks and balances that ought to have ensured dodgy borrowers and high-risk cases did not proceed further up the line to the point where they have effectively endangered the entire financial system and created the financial crisis we are suffering right now.
And yet, for all that I am having a go at brokers, it is also easy to forget that many of them were not just greedy commission-hungry merchants desperate to bag themselves big proc fees. They were also a port of call for desperate borrowers who saw them as the people best placed to make their dream of living in fairytale castles come true.
Many might have been greedy or incapable of giving decent advice but others got sucked into helping fulfil their clients’ aspirations, even though in their heart of hearts they must have realised how unrealistic some of them were.
Yes, there is undeniably a need for brokers to act as providers for genuine reality checks for mortgage borrowers. However, that is not a matter for them alone to take on board but the industry as a whole.
Which is why the comments by some providers – the Council of Mortgage Lenders in particular – at last week’s FSA conference on mortgages, really do not stand up to scrutiny.
According to Money Marketing, the CML “used the FSA’s mortgage conference this week to launch a fierce attack on small mortgage brokers”. The trade body’s head of policy Jackie Bennett said stricter authorisation standards and higher capital and professional indemnity requirements were needed for brokers, who she claimed “acted more like salesmen interested in maintaining their cashflow than advisers protecting their customers’ interests”.
As I have said, brokers have to take a large share of the blame for what happened. Neither do I have any problems with far stricter regulation of the intermediary market. But what about lenders themselves? At the same conference, Jon Pain, the regulator’s retail markets managing director, pointed out that a key problem was that lenders themselves stopped verifying income when considering home-loan applications.
Pain told delegates: “Many of the specialist lenders heavily marketed and sold self-certified products and a large percentage of these have led to correspondingly high levels of arrears and fraud.”
Back in 2007, 45 per cent of all mortgages were offered without a check on the stated income of the proposed borrower. Why did this happen? Pain said lenders saw affordability checks as the responsibility of the broker or financial adviser.
This doesn’t make sense – are lenders really pretending they had no idea whatsoever what was happening, that somehow all intermediaries were falsifying forms on which they were explicitly asked to state that they had verified their clients’ incomes?
Or is it far more likely that the vast majority of lenders never even wanted the question to be asked, that they preferred not to know so they could grow their mortgage books at dangerously vertiginous rates?
It is surely not an accident that Pain also pointed out it was lenders themselves who fought hard against barring employees, whose incomes are easy to check, from applying for self-cert mortgages. They must have known that a key reason employees take the self-cert route on a loan application is because they are likely to want to inflate their incomes.
The crisis facing lenders and brokers today is too great for either the CML or Association of Mortgage Intermediaries to pretend it is the other side alone that is to blame. Indulging in such tactics is both dangerous and reveals more about the industry than its participants realise.
Nic Cicutti can be contacted at firstname.lastname@example.org