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FSA probe reveals sub-prime loan mismatch

An FSA probe into the sub-prime market reveals that a tenth of firms are arranging mortgages where client’s income was short of lenders’ requirements.

Three firms out of a sample of 31 small brokers were identified as helping customers get a mortgage where income did not meet the lender’s criteria. These firms have been referred to the regulator’s enforcement division for further investigation.

The FSA investigation looked at 210 cases to assess whether advisers were taking reasonable steps to ensure recommendations to take out sub-prime mortgages matched the needs of the consumer.

In 60 per cent of cases, insufficient information was obtained about the customer in areas relating to the sale of sub-prime products. In 80 per cent of cases there was no evidence to show how the recommen- ded sub-prime product met customer needs.

In 67 per cent of cases involving debt consolidation, firms could not show they had taken account of the additional requirements related to debt consolidation mortgages.

A further review is planned for the first quarter of next year.

FSA head of mortgages & credit union department Andy Watson says: “It is diff-icult to establish the level of consumer detriment or potential misselling as many of the failings related to poor record-keeping and brokers could provide more detail when challenged. We will be looking for better evidence of compliance with our requirements in future.”

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