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Self-cert spectre is stalking loan firms

The ghost of self-certification could be ready to haunt lend-ers, brokers and the regulator again as an outspoken MP raises concerns over possible fraudulent applications.

Almost one year on from the BBC TV programme damning self-certification, Liberal Democrat Treasury spokesman Vincent Cable has written to the FSA, asking it to indicate what steps it is taking to ensure that borrowers are not overstating self-cert.

Cable says he is concerned about the rise in self-certified mortgages. He wants the FSA, which now regulates mortgages, to make clear what guidelines are in place and precautions against improper behaviour.

He says: “People are clearly busting the system, encouraged by the less reputable banks and lenders. It is the FSA’s business to focus on high-risk areas at all times. There need to be clear guidelines on what is acceptable and what is not.”

The FSA says it has no current plans to look again at self-cert. FSA spokesman Robin Gordon Walker says: “There are no specific plans to look at self-certification, although you cannot close something off forever.”

But at the Council of Mort-gage Lenders’ annual conference in December last year, FSA managing director of retail markets Clive Briault, talking about the FSA’s plans after M-Day, said: “We will pay close attention to higher-risk areas such as sub-prime lending and debt consolidation.”

Cable, who has not re-ceived a reply from the FSA since sending the letter in December, says the CML has shown growing concern with the self-cert market although the CML denies it is looking at self-cert again.

There seem to be mixed views on self-cert from lend-ers. BM Solutions managing director Michael Bolton says: “There is a still a big question mark hanging over self-certification.”

Yorkshire Building Society chief executive Iain Cornish said last year that self-cert could be the next misselling scandal and the society still does not offer self-cert. Corporate affairs manager David Holmes says: “We take the same stance as last year.”

Accord Mortgages, the intermediary lender of the York-shire Building Society Group, offers fast-track mortgages instead of self-certification. Commercial director Mark Underhill says the firm decided not to offer self-cert because of the pressure on intermediaries.

He says: “Under the FSA rules, the intermediary is obliged to assess whether the customer can afford the loan. There is an onus on intermediaries to assess a loan and provide proof of the assessment. Our fast-track loans include random checking on clients’ circumstances that are very thorough.” Accord has no plans to introduce self-cert.

But can fast-track be seen as self-cert in disguise? The CML says self-cert accounted for 1 per cent of mortgages in 2003, or 720m of loans, but if fast track is included, this figure rises to 30 per cent of all UK loans.

Hamptons International Mortgages managing director Kevin Duffy says the problem lies in definition. He says: “The term fast track is being increasingly used.”

Rutherford Insurance mortgage consultant Neil Simms says: “Fast track is probably being used, where possible, in place of self-cert. But whether a mortgage broker is advising on self-cert or fast track, you have to make sure it is right for the customer.”

Purely Mortgages compliance director James Mayne believes the FSA cannot look at self-cert until more data has been collated on the effects of regulation of M-Day but he does believe that lenders need to change the yardstick by which they measure customers’ suitability.

He says: “The lending criteria are so wide. Self-cert is usually measured by affordability but one has to assess whether it meets the client’s criteria. The emphasis needs to change. From an advice point of view, brokers need to not just look at income multiples but also pay attention to the client’s needs by taking a wide range of information from them.”

But Mayne believes the FSA has done all it can in light of the BBC’s self-cert investigation. He says: “The FSA’s position is difficult. It is still collating data from lenders on how big the market is. It is difficult to start hitting people over the head when there is no evidence to back it up.I believe the lending industry has been taking self-cert ser-iously. We will not know the actual size of self-cert lending until later in the year.”

Woodland Financial Part-nership partner Peter Clarke disagrees that the FSA has done all it can. His firm will only offer advice on self-certification for self-employed clients and not for those that are employed and have been for a substantial period. He says: “Nothing has been improved on by the FSA – the situation is still much the same as last year.”

Wingham Wyatt Financial Services director John Kearney says there are too many grey areas on self-cert which could lead to abuses. He says: “Regulation may help to stop some of these problems.”

Self-cert comes under the regulatory regime and estate agents will also have to be regulated under general insurance regulation from January 14. Advisers attached to estate agencies were featured in the BBC report last year but it is hoped that regulation will bring tighter controls on estate agents and advisers.

Belgravia Insurance consultant Paul White says: “The FSA may have taken a relaxed view and deferred major action, knowing that mortgage regulation was coming, but if they wanted to revisit it, they may have missed the boat, with the cooling mortgage market.”

Mayne says the FSA’s Treating Customers Fairly scheme is its main preoccupation and it is in this spirit that it may choose to look again self-cert.

When the FSA makes its report on mortgage regulation in June, lenders and brokers will see whether the spectre of self-cert will be back.

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