FSA chief executive John Tiner has told mortgage lenders that they cannot be complacent about self-certification mortgages, even though the regulator's investigation has not turned up any evidence of widespread impropriety.
The investigation, prompted by BBC allegations of abuse, concluded that systems and controls were adequate to counter the risk of financial crime but Tiner has made it clear that there is no cause for the industry to be smug.
Last October, The Money Programme showed how some mortgage brokers were encouraging clients to inflate their incomes for self-cert mortgage applications which provoked uproar in the industry.
Birmingham Midshires suspended three consultants who featured in the programme and Yorkshire Building Society chief executive Iain Cornish warned that self-cert could be the next misselling scandal.
In February, the BBC looked at what steps lenders were taking to detect fraud arising from fast-tracking the underwriting process.
Tiner says he expects all regulated firms to have systems in place to detect and report attempted fraud to the relevant criminal authorities, commenting: “I wonder if the principles of good lending sometimes tend to get forgotten in the excitement of pursuing new sources of business and reducing administration costs?” However, lenders have closed ranks against Tiner's assertion that some lenders operating in the buy-to-let, sub-prime and self-cert markets have not properly assessed the risks.
Nationwide head of intermediary markets Peter Laydon says: “We have created sophisticated credit -risk systems for sub-prime and are always concentrating risk.”
Nationwide has a dedicated subsidiary – UCB Home Loans – which handles specialist mortgages for buy to let and self-cert.
Mortgage Express product manager Mary Sung says the industry and the FSA has agreed that lenders are putting the appropriate checks and balances in place and is surprised by the new message.
She says the firm has a multi-stage assessment process which includes a “conservative measure” of affordability and is confident that it will meet regulation in the future.
She says: “Some lenders may not be as conservative as we are in assessing people's ability to pay but at least in our case I can say that concerns of risk are not warranted.”
GMAC-RFC head of marketing services Jeff Knight says its risk assessment systems are more than sufficient. He says: “The comments are definitely unwarranted in our case. For us, there are actually more hurdles for the applicant to jump through than for regular mortgage products.”
But intermediaries believe Tiner is well within his rights to reaffirm the message of risk control. Jelf Group company Bath Financial Planning associate director Andrew Cook says although he only uses self-cert for self-employed clients, some lenders are still heavily pushing the product in areas which he believes are not ideal.
He believes that even though companies such as Northern Rock, which featured in The Money Programme report, claim not to be pushing self-cert, the product features heavily in its documentation.
Cook agrees that a lot of lenders have tightened their processes although there are still quite a few that are lax. He says: “The market is split between those lenders who take the risk seriously and those that are simply pushing applications through. Some definitely have a more sensible app-roach than others and for those less sensible, the bar needs to be raised.”
London & Country mortgage specialist David Hollingworth says he is not surprised that lenders are arguing strongly against Tiner's comments and that there are plenty of cases where application processes are quite secure. He says: “It is not in the lender's interests to have a borrower fall into arrears. Regardless, there is nothing wrong with saying care is needed.”
Association of Mortgage Intermediaries director Chris Cummings says Tiner's comments were slightly eyebrow-raising, given the findings of the FSA's report, and adds that the AMI will be looking closely at what the implications are for its members.
He says: “It is very interesting that Tiner made such a point of assuring the FSA's stance. He has firmly placed the ultimate responsibility for risk with the lender, who has been insisting there are no problems.”
Cummings points out that Tiner's comments about being aware of fraudulent representation were not directed at intermediaries but rather were highlighting the intermediaries responsibility to pass on the correct information to lenders.
Although Cummings ref-rains from saying Tiner's remarks signal a change in FSA policy towards the sector, he sees a clear message for lenders – “the ultimate responsibility lies with you.”