The sale of mortgage products has been under the regulator’s remit since November 2004 but with residential property losing more than 10 per cent of its value during the 12 months to the end of December 2008, according to the Department for Communities and Local Government, the financial crunch seems to be unearthing the sins of the property boom and some unscrupulous activities in the mortgage industry over recent years.
So far this year, the FSA has fined two brokers a total of £118,606 and banned three more. It banned mortgage broker Leo Kusi-Appiah, who was recently jailed after pleading guilty at St Albans Crown Court to obtaining property by deception in connection with mortgage fraud.
The FSA found that Mr Kusi-Appiah, who traded as Oxford House Financial Services in North London, submitted fraudulent mortgage applications in his own name, in his wife’s name, and in the name of a wholly fictitious person.
Although the FSA actually banned Mr Kusi-Appiah nearly two years ago, the publication of the final notice had, for legal reasons, to await the outcome of the court case.
Director of enforcement, Margaret Cole says: “This is one of the more serious mortgage fraud cases we have come across since mortgage regulation began four years ago. It was one of the first mortgage broker cases we decided to investigate back in 2005.
“We continue to work with police forces and other law enforcement agencies in the nationwide crackdown on mortgage fraud and I expect to see more prosecutions of this kind and confiscation of assets in coming months and years.”
The two brokers that have been fined this year are Nottingham firm Gillen Farrelly Independent Advisers Limited and Richard Kennedy, a director of Dynamic Mortgage Brokers of East London, who were fined £17,500 and £101,106 respectively.
FSA has also banned North London broker Moses Luzinda trading as Remos and Co for submitting false mortgage applications and John David Cook of Liverpool-based Stone Financial Management Limited.
Cole says: “The actions of Mr Kennedy and Mr Luzinda were serious and blatant and posed an immediate risk to lenders. As part of our crackdown on mortgage fraud, we have banned a number of mortgage brokers and others in the last year and we will continue to make examples of people who commit mortgage fraud until behaviour changes.”
The FSA says the brokers’ offences range from failing to adequately assess borrowers’ financial situations and failing to keep sufficient records to submitting inaccurate and misleading information relating to borrowers income through to outright fraud.
In 2008, out of a total of £22.6m in fines issued by the FSA, around £1.4m was targeted at mortgage brokers found guilty of misconduct.
In 2005, at the height of the sub-prime boom, Abbey National was hit with a £800,000 fine for the mishandling of mortgage and endowment-related complaints but not a single broker was punished.
By 2006, mortgage brokers were hit with fines from the FSA totalling £168,000 for a number of offences including inadequate systems and controls and cold-calling. In 2007, this figure rose to £255,500.
Until 2008, the majority of fines were for inadequate controls and systems leading to inadequate or unsuitable advice and it was only during 2008 that instances of fraud started to attract the FSA’s attention.
Speaking in late 2008, Nationwide Building Society director Matthew Wyles said: “The FSA is having a purge on mortgage intermediaries. It is focusing very intensely on stamping down on poor standards within the mortgage industry. A lot of the sins are hidden in a rising market but when things start to go wrong, then consumers are far more likely to complain.
“The mortgage intermediary market is very splintered and while I generally think that standards are not bad, at the bottom end of the market there quite a lot of rogues, especially within the sub-prime sector. Over the coming two to three years, a steady flow of mortgage brokers will con- tinue to be fined, closed down and censured by the FSA.”
The crackdown seems to be continuing this year.
Informed Choice managing director Nick Bamford says “I am surprised that it has only been that amount of mortgage brokers taken to task. There are undoubtedly more brokers out there who will be tackled by the FSA.”
Commenting on the growing level of FSA fines, Association of Mortgage Intermdiaries director Robert Sinclair says: “It is unfortunate but true. The FSA has only been regulating the industry for a short while and the mortgage intermed-iary market is experiencing a bedding-down period – it is getting used to the new regulations. The level of brokers being fined by the FSA is a very small percentage but if brokers are acting fraudulently then there is no question that the FSA should take action.”