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FSA does not want to exclude self-employed from mortgage market

The FSA says its proposals to introduce income verification on all mortgage applications should not exclude self-employed borrowers from the mortgage market.

Speaking at the Mortgage Business Expo in London today, FSA director of small firms and contact centre Lesley Titcomb also challenged the extent of dual pricing by some lenders, questioning why lenders bother to market some intermediary products at all as they are such poor value.

Titcomb also sounded a warning on mortgage brokers referring clients to claims chasers, cautioning that it could put them in breach of data protection rules.

Titcomb said: “This is also a good opportunity for me to dispel some of the myths that are out there about our proposals. Does anyone really think that we really want to stop self-employed people – over three million people – from ever getting a mortgage again?

“And do we really want to make all lenders ask their customers how much they spend on cigarettes and alcohol? The answer to both of course is no, but you could be fooled into believing otherwise by some of the comments we’ve seen so far.”

On dual pricing, Titcomb insisted it was a commercial issue and not an area where the FSA would intervene.

However she added: “Where an intermediary product is of such poor value compared to a direct product from the same lender, we question why lenders would continue to market that product.”

In a warning on claims management companies, Titcomb said: “One area where we have seen anecdotal evidence of business growth and poor practice is where FSA-authorised firms are introducing their customers to claims management companies.

“I would just like to say that if a claims management company approaches your firm, be careful. We have seen firms failing to consider their data protection obligations when referring customers without the appropriate consent, others failing to perform any due diligence on the claims manager they refer to, asking no questions about success rates, the average length of time to complete on a claim and refund policies where fees are taken up front.”

Titcomb said that in one case the FSA has seen, an intermediary referred a customer for claims management despite evidence being held on file indicating the claim was unlikely to be successful from outset.

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Comments

There are 22 comments at the moment, we would love to hear your opinion too.

  1. What’s the FSA’s stance on applications for mortgages on second homes?

  2. F-Pack Wooden Spoon Team 11th November 2009 at 5:17 pm

    I’m not sure why the FSA has to poke it’s nose into self-cert mortgages. If a lender want to take the risk of lending money then they should make that commercial decision based on their business model and not ask for income at all. The problem is that lenders ask for incomes which as the article says can be inflated. Lenders who wish to be in this market place should not request any income verification at all. Otherwise steer clear of all self-cert mortgages altogether and don’t offer them. In which case the FSA has no purpose in this matter and should keep out. I have awarded wooden spoons all round to the FSA and the lenders!

  3. I believe the FSA should seriously look to put pressure on lenders to review loan criteria especially for the self employed. To asses a case purely on ‘Net Proft’ is ludicrous. We are all aware self employed clients look to minimise profit via legitimate deductions from profit. We need experienced underwriters to look at each case on merit.

  4. Wonderful Lesley Titcomb, the FSA isn’t in the slightest bothered about dual pricing by the banks, (her friends) but indirectly threatens Brokers who (along with their clients) are disadvantaged by that dual pricing. That in turn will put the IFA/broker out of business because he will have to charge a fee, where as the institution will be able to price its fees into the mortgage product.
    At least when the small IFA /broker has been put out of business then almost 100% of complaints to FOS will be created by the banks!
    God forbid that the FSA survive another year. Lesley get some common sence.

  5. This seems to me to be somewhat of a ‘nothing’ speech! – nothing new, nothing clarified, nothing to help.
    The FSA seem to want to keep reiterating negative comments with regard to the self employed without really understanding the issues. They keep saying what the wont do but not what the best solution is.
    The difference between someone employed and self employed is simply that an employed person can use their up to date income proved by the pay slip, whereas, many self employed clients have accounts 12 months old showing last years income which may not be representative of their income now.
    I hope that the FSA can come up with the most appropriate solution and deliver it positively avoiding self employed people becoming second class citizens.

  6. Er, Lesley, lenders market these products because they make a mint from them (RBS, HBos etc) and because they can then put the blame on to whichever poor desperate broker had no choice, often because their network or employer forbids them to advise on direct deals.

    This should have been addressed 18 months ago, rather than the oft-repeated limp script dreamed up by somebody in Canary Wharf.

    The whole thing has been a disgrace from start to finish and is a badge of shame for all involved, especially the FSA.

  7. More than one “Phew” is called for! Don’t like myths but where do they emanate from?

    I would contend that referring clients to anybody else without the express permission of that client should be banned, even if it is within a group of companies as is often the case with banks, insurers, accountancy practices and law firms, TCF and all that, the DPA is a much abused piece of legislation thanks to all the little tick boxes on forms and online ‘terms and conditions’ which hardly anybody reads.

  8. if the fsa forces the s/e to prove income it will effectively exclude millions from the mortgage market and effectively force them to stay with their existing lender, often at very uncompetitive rates. This will case much hardship and condemn millions of families to a life of hardship!

  9. Just because the FSA says it doesn’t want the self-employed to be excluded by mortgage providers, doesn’t mean that they won’t be excluded.

    The FSA and this useless government seem oblivious to the law of unintended consequences. They never think things through. When the government (or any of its quangos) steps in you can bet your life that they’ll mess things up.

    With all these new rules and general interference, they are still trying to pin the blame on someone else for their incompetence in not avoiding the worst economic crisis in 50 years. It wasn’t a few iffy mortgages that caused the problem – it was the greed of bankers, politicians and City institutions (including the investment houses) that are to blame, with the FSA standing by and doing nothing.

    It’s a bit late to start re-arranging a few deck chairs !

  10. You must be joking 11th November 2009 at 6:02 pm

    I assume that the “powers that be” at the FSA have by now issued a memo to all staff who are currently (or may in the near future) applying for a mortgage along the lines of:

    “Since the Tories announced that they may well do away with the FSA, you are, from this moment forward ,required to ensure that any application you make for credit contains the statement “I may be reundant within 2 years” alongside your statement of income. Anyone found not abiding by this requirement will be told off in no uncertain terms (but will of course not be sacked, accused of fraud or fines)”

  11. In the comments on mortgages for the self employed reported above Lesley Titcomb is being incredibly naive about the likely ‘outcome’ of the FSA’s proposals. They like ‘outcomes’ at the regulator but don’t understand unintended consequences.

    When her bureaucrats have formalised these proposals and issued guidelines(?) and the management and underwriters at the lenders have digested these the result will be that the lenders will decide to err on the side of caution, they WILL ask for chapter and verse on applicants spending and this will include asking about just such examples as she mentioned, alcohol and cigarettes!

    Come out into the real world Lesley.

  12. This seems to me to be somewhat of a ‘nothing’ speech! – nothing new, nothing clarified, nothing to help.
    The FSA seem to want to keep reiterating negative comments with regard to the self employed without really understanding the issues. They keep saying what the wont do but not what the best solution is.
    The difference between someone employed and self employed is simply that an employed person can use their up to date income proved by the pay slip, whereas, many self employed clients have accounts 12 months old showing last years income which may not be representative of their income now.
    I hope that the FSA can come up with the most appropriate solution and deliver it positively avoiding self employed people becoming second class citizens.

  13. mortgagemicroscope 11th November 2009 at 7:53 pm

    I am pleased to hear a balanced view on these hot topics, especially from the FSA….will they be a little more level headed on TCF and the RDR ??

    We are bombarded by third party Supply companies offering services by fear including Compliance and Claims Management. I have not sent one client to these operations although I am inundated with email requests to do so. How do we vet them or do due diligence ??

  14. I wonder how many bank employees are now finding their mortgages unaffordable now that their bonuses have been taken away? At least a lot of self-employed people can afford their mortgages, but not necessarily be able to prove their income.

  15. I disagree with the FSA on the dual pricing issue and as Stuart Duncan has done have publicly had issue with Lesley Titcombe on this over the last 2 years. The dual pricing itself is NOT illegal, it is a legitimate busininess practice, it is the information assymetry and the refusal of the lender to accpet the right of a client even when applying for a direct deal to use an agent (agency law).
    Now as to the rest of her speech.
    1. Referring to claims chasers – I agree with Evan re DPA issues, i.. the FSA are probably right and personally I think many of you are mad directing your clients to claims chasers.
    2. On the mortgages for the self employed, I am no lover of the FSA as a lot of my posts will show BUT the comments by those of you above do make me question how many have actually READ what the FSA Discussion paper 09/03 Mortgage Market Review said. The main bits I picked up were verified income (historical) and plausable future income (forecasts). It is then down to the lender to put staff in place which actually understand accounts of both the self employed and the employed.
    The FSA have NOT laid down maximum LTVs, nor maximum income multiples so if the lender/underwriter wants to take in to account the legitimate and lawful offsetting of expernditure for tax purposes and add it back on top of the net profit before calculating an income multiple when comparing to an employed person, they CAN. The point the are making is that it has to be PLAUSABLE and any adviser has to be willing to stand by the decision as to that plausability when putting the application to the lender and after completion, if the mortgage defaults the adviser and underwriter may have to explain themselves to the FSA and if they’ve done lots of mortgages you said were plausable and the evidence you have as to why you thought them so is flimsy, be prepared for a fine

    I will be interested to hear Stuart Duncan’s comments on the income verification and plausability issues in the FSA’s discussion paper as he actually HAS read it as have I, but until I know some of you have read it, rather than what Lesley Titcombe has been quoted as saying in her speech (don’t forget journalist pick things to get you all to comment), then a lot of what has been written above is just hot air rather than a carefully considered response.

  16. Call in Boyd,as ‘Waking The Dead’ is called for here.

  17. I think it is an absolute joke that the FSA think that dual pricing is a commercial issue… I think they should look back at their recently introduced Treating Customers Fairly principals, becuase allowing dual pricing to continue is clearly not fair on any customers who have the common sense to seak advice when dealing with their financial matters.

  18. Forrest gump knows better then Lesley. 12th November 2009 at 9:14 am

    Titcomb said: “This is also a good opportunity for me to dispel some of the myths that are out there about our proposals. Does anyone really think that we really want to stop self-employed people – over three million people – from ever getting a mortgage again?”

    Answer: You actually dont really care or you dont have a clue…. Lesley, you choose.

  19. Don’t let reality interfere with FSA plans Lesley!

    Steve

  20. The death of self-cert is hardly unexpected and I beleive some brokers are likely to have knowingly committed mortgage fraud to assist with these arrangements, most still uncovered. Greater transparancy and susequent accountability when considering repossessions is required.
    It seems insane that our government is making massive over-commitments to avoid a collapse while at the same time government owned banks are doing all they can to help themselves. I am unclear, if the government takes no say in banking strategy, or the FSA, or the public then who does? And who are the banks primary concern?

  21. I do feel sorry for mortgage brokers on this exceedingly vexed issue of dual pricing. My view is that it should be banned, with the lender offering the customer a rebate of what would have been paid to an IMB by way of a proc. fee. Seems simple to me and would surely sort all this trouble out ~ so why can’t the FSA figure this out for itself and act accordingly? Too busy with things like TCF and the RDR.

    Then again, it does seem shameful for lenders effectively to discourage customers from using an IMB after having for years relied on them as their principal source of customers. In business, as they say, you have no friends.

  22. The problem is not asking self-employed applicants to prove their income, but how their income is assessed. Extracting a director/shareholder’s “income” from a limited company’s trading accounts is a matter of interpretation………..should it be their share of net profit, salary, drawings, plus an allowance for “director pension contributions” and add back a one-off bad debt? Should it be based on the last years accounts, or an average of three years – or neither of these! Should it include new contracts procured during the last year and exclude discontinued ones, because these will affect this year’s income? The list is almost endless.
    Exactly what should a lender take into account in arriving at a realistic “disposable income” figure for the client?
    Until lenders revert to using experienced underwriters who understand accounts, the majority of self employed applicants will continue to be excluded because their income is based on a multiple of net profit, being the only figure the computer and inexperienced processors are comfortable with.
    It does not matter what noises the FSA makes, until lenders revert to “real underwriting”, and are not scared to use experience to assess an application without the fear of be crucified for making an error of judgement, the problem will remain.

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