At 337 pages and 13 chapters, the final mortgage rules were published last October. By ensuring that publication came before the end of October, the FSA met its commitment to the industry to publish the final rules a clear year before the start of statutory regulation.
This is an important point to note – as there is no grandfathering or transitionary per-iod with the onset of mortgage regulation. Unlike other parts of the market, where there has been say, a six-month run-in period, on October 31, regulation kicks in and that is that.
The FSA started accepting applications on January 12 and within the first week, 60 firms had applied. 7,600 firms had pre-registered with the FSA for regulation. It will be interesting to track how the number of real applications proceeds in the coming months.
Having been through the application form both in paper and online, the key message to take away is that the FSA is not expecting you to conform with its regulatory requirements on the day you apply but to be in a position to conform with them by the start of regulation. So firms have seven months to get their systems sorted out before they will be tested.
Here is a quick rundown of what is in and what is out.
1: Application and purpose.The who, what and where of the rules.
2: Business Standards. Communications, inducements, high-pressure sales, reliance on others 3: Financial promotions. Coldcalling, advertising.
4: Advising and selling. The rules on whole of market/ panel, independence, IDD, advice and records.
5: Pre-application disclosure. When to produce illustrations, accuracy, KFI 6: Offer disclosure. A lenderbased section.
7: Disclosure start and after sale. More on disclosure, especially for lenders.
8: Lifetime mortgages: Advising and selling. The application of the rules for this area.
9: Lifetime mortgages. Product disclosure, further rules for the lifetime market.
10: APR. The detailed rules on APR calculations.
11: Responsible lending. The rules covering this area, especially for self-certification.
12: Charges. This section covers fees and excessive fees
13: Arrears and possessions. A self-explanatory section.
It would take too long to pick out all the interesting (yes, I did say interesting but, then again, I do this for a living) aspects of the rules so let me provide a quick tour of a couple of the more immediate aspects.
Chapter two deals with business standards. Here, you will find the rules on “inducements” – procuration fees, etc. It is fairly common knowledge that what used to be called “volume overrides” will no longer be permitted.
However, lenders can help intermediaries improve the “level of service” they offer to clients. This has also been termed “marketing allowan-ces”. So not only is it acceptable to get a procuration fee for advising on mortgages from a lender, the lender can also help you afford to offer better service.
However, the FSA rightly points out that a firm cannot accept an inducement that would put in danger the “duty of care” a broker owes his client. Firms must have monitoring processes in place to ensure this is the case.
Let me turn finally to good news in the rules (there had to be, didn't there?). The FSA specifically will not allow those involved in the mortgage process to offer a potential borrower the least worst fit of product in their range. If the firm cannot match the borrower's needs with the products at their disposal – they must advise them to seek professional advice. This applies even if the firm is engaged in a “non-advised” sale (if the products they have do not meet the borrower's requirements). This should help stimulate business and those best placed to meet the need, are, of course, professional intermediaries.
Chris Cummings is a director at the Asoictaion of Mortgage Intermediaries