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Lenders face a flash flood

Amid widespread speculation that mortgage complaints could skyrocket due to the credit crisis, mortgage brokers will be relieved to hear that the vast majority are expected to involve lenders.

In an interview with Money Marketing last week, Financial Ombudsman Service lead ombudsman Jane Hingston said the FOS is expecting the overwhelming majority of mortgage complaints to involve lenders, not intermediaries.

Hingston estimates that broker-related cases will make up just 2 per cent of its mortgages caseload.

She says: “Bear in mind that when we talk about mortgage-related complaints, we really are talking about everything from the start of the mortgage to the end of the mortgage and everything in between.

“Sometimes, it is easy to focus on the sale of the mortgage as being the very obvious flash point but there are lots of flash points as you go along which can give rise to a complaint.”

There had been growing concern in the industry that brokers would have to deal will a big increase in complaints due to the credit crisis exposing bad advice.

In a recent speech, principal ombudsman Tony Boorman said mortgage complaints had increased by 50 per cent from 4,366 in 2006/07 to 6,500 in 2007/08.

He said the FOS expected further increases this year and suggested it would make “significant awards” against poor advice.

CBK Colchester principal Peter Chadborn says lenders are likely to take the biggest hit from complaints. He says: “One would hope that the implementation of TCF should have seen most brokers assess their processes and make improvements where necessary. It therefore follows that the FOS expects fewer complaints from brokers.

“In our experience, lenders are very good at talking and less good at doing when it comes to things like TCF.”

Worldwide Financial Planning mortgage specialist Ronan Marrion says: “The onus is on advisers to go through all the details and to assess suitability rather than the lenders.

“Maybe more complaints will arise from lenders when people have not used an intermediary. I would assume that with today’s technology, people are doing their own shopping online and arranging the mortgages for themselves so maybe there are not as many checks or people to speak to to warn about the possibilities of payments going up.”

But Financial Services Legal head of regulation law Gareth Fatchett says from his firm’s experience, the FOS might be premature in its predictions.

He says: “I am not sure that the FOS is right about predicting that such a small number of intermediaries will have complaints against them. From what we have seen, it will probably be more like a 30/70 split between intermediaries and lenders.”

Hingston says affordability is the main area of concern for the FOS.

She says the FOS would not expect consumers to understand the ins and outs of mortgage products and it would be the responsibility of the broker or lender to tell the consumer that a mortgage would be unsuitable for them.

Hingston explains that when calculating compensation, the ombudsman service will seek to return consumers to where they would have been if the advice had been appropriate.

She says it is possible that where a broker or lender has wrongly recommended an interest-only loan rather than a repayment mortgage, they could be liable to cover the resulting gap in capital repayments. Hings-ton points to previous cases involving lenders where a mortgage was mistakenly operated on an interest-only basis and the lender was ordered to pay the difference.

She says: “One can see where that may not be illogical to carry that across to the intermediary world. It is a possible outcome, it is not illogical for a case where you feel that but for what the intermediary did, the consumer would have had to have been somewhere down the road of paying off the mortgage. Scenarios in reality are rarely as simple as that but the principle is not an illogical one.”

Chadborn says: “That is going to come as a shock to many, enough to give a few people sleepless nights. But then again, if people have understood what TCF is all about, these processes should have been looked at so if anyone one does fall foul of that, they have really only got themselves to blame.”

Fatchett says: “I have never found the FOS to be particularly sympathetic. Bearing in mind the reason why a consumer would probably complain is because they cannot pay the mortgage or they think the redemption penalties are too high or they don’t understand the fees.

“People get themselves into trouble and they want to blame someone else. So advisers must make sure that their files are well documented to show people that you told them about the costs and the risks. If you don’t, do that you are opening yourself right up.

“I would be tempted to make sure the adviser gets a signature from the client saying they have understood the risks and used questionnaires so customers confirm that they are happy and understand.”

Best Invest mortgage manager Peter O’Donovan says: “If all the documentation is there correctly, the suitability letter and offer letter itself and TCF guidelines have been followed, it would be difficult to prove that the IFA did not advise the client about all the future issues that may occur.

“There are always a few cowboys but other than normal complaints over a product that was provided, I cannot see why complaints would increase against IFAs.”

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