If there is one subject that is guaranteed to raise the hackles of anyone in the mortgage industry at the moment, it is self-certification.
Lenders and brokers are up in arms over the issue, trade bodies and the regulator have closed ranks, saying there is no problem, but further revelations from the BBC last week claimed that there could be problems affecting up to 30 per cent of the mortgage market.
After reviewing the controls of 15 major lenders, the FSA has concluded that they “generally have adequate controls in place to protect themselves from becoming conduits for mortgage application fraud”.
One of the major reasons for this finding is that the FSA believes that that genuine self-cert lending represents only 6 per cent of all mortgage balances.
The CML, when first interrogated by the BBC programme, said self-cert only accounted for 1 per cent of mortgages but later amended this figure to 6 per cent.
But the BBC programme claimed that, if fast track is included, this figure is closer to 30 per cent.
Even if 6 per cent is the correct figure, this would still account for £720m of loans issued in 2003 without verification of income out of the total loans for house purchase totalled of £12bn.
The Money Programme's first investigation into selfcert last October alleged that brokers and estate agents encouraged clients to exaggerate their incomes to get mortgages with higher income multiples.
The second part of the investigation, shown last week, turned the spotlight on to lenders and claimed to show the anger of brokers who felt that lenders had not taken enough responsibility for the problem.
It featured Mortgage Talk chief operating officer Andrew Frankish saying: “There is a responsibility on a broker not to lie. However, the blame has to stop with the people who designed these products and that is the lenders themselves.”
Another broker admitted helping clients to exaggerate their incomes but said he was doing nothing wrong because lenders offering self-cert mortgages encourage brokers and borrowers to do so and turn a blind eye.
The BBC programme also put lenders under scrutiny for fast-track mortgages, where the lender reserves the right to ask for proof of income. It shows a broker saying that around half of the mortgages he placed a month with Northern Rock had an exaggerated income but Northern Rock never came back to check.
But lenders have hit back at the claims from the programme and from brokers. GMAC-RFC Stephen Knight says: “Brokers are talking about this without actually knowing what checks lenders do, as we do not tell them.”
He says most lenders reserve the right to make income checks so the number of people prepared to take the risk of lying is “infinitesimal”.
Knight points out the FSA has investigated the situation and cleared lenders of any fraud claims and says: “The vast majority of lenders set a higher hurdle rate for self-cert loans in compensation for not checking income. The FSA found that arrears for self-cert mortgages are not significantly different from normal mortgages and for fast track they are better.”
MCCB chief executive Luke March is also unhappy with the direction that The Money Programme took. He says: “The MCCB is concerned that some of the issues raised and the content of the programme do not accurately reflect industry practices and processes or, indeed, the MCCB's own experience as regulator.”
Knight adds: “The whole thing is based on Birmingham Midshires. It is the only lender with an advertisement that specifically said no references are required. I am sure that the BBC would have loved to have found another lender guilty but obviously this was not the case.”
Freedom Finance managing director Colin Snowdon points the finger at bigger lenders coming into what used to be a niche market. He says: “When the big lenders start getting involved, they push too hard with their sales targets and this sort of thing starts to happen, with those at the top of the pile not knowing what is going on at the bottom.”
But The Money Programme is warning the CML of a possible backlash after directorgeneral Michael Coogan's statement that there is no systemic fraud on self-cert.
Presenter Michael Robinson said: “The CML had better hope that they are right because if a lot of fraudulent applications are getting through it would be serious. Taken together, the number of self-cert and fast-track mortgages is huge.”
The programme also accused the MCCB of failing to recognise abuse of the system claimed to be revealed by the BBC, despite looking at the paperwork of 2,000 brokers a year.
March defends his decision not to appear on the programme. He says: “The MCCB was asked to appear on The Money Programme and provided full support and co-operation to the programme. However, as the industry's independent regulator, the board did not consider it appropriate to appear on a programme which might raise issues about which it may then have to adjudicate.”
Both the MCCB and CML have asked the BBC to release any evidence of fraud that it has gathered but nothing has so far been forthcoming. The MCCB “hopes that this is not a reflection on the robustness of the evidence”.