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Verity&#39s view

The Financial Services Authority&#39s chief executive John Tiner is by no means used to having an easy ride before the Treasury select committee of MPs. Last week, there was another awkward moment.

The persistent Jim Cousins, MP, asked Mr Tiner whether he knew how many mortgage endowment policies had been reviewed to check for potential misselling.

There was a long pause, followed by an acknowledgement that he did not know. Cousins asked if this wasn&#39t a crucial piece of information.

“Why?” asked Mr Tiner.

Because, surely, it was fundamental to assessing the scale of the problem, Cousins replied, in a somewhat surprised tone of voice.

In fairness, no chief executive of an organisation as all-encompassing as the FSA could be expected to have all the information at his fingertips all the time. The FSA press office later clarified that half a million people have received compensation for endowment misselling, to the tune of £800m.

Yet that still does not tell us how many potential cases of endowment misselling have been reviewed. That leaves us unable to assess, for example, how many cases have been brought before companies and rejected so we do not know the success rate of complaints, surely a crucial figure not just for the Consumers&#39 Association but also for professional indemnity insurers.

The Financial Ombudsman, who, as we know, has been dealing with a quadrupling of complaints, has accepted 40 per cent of complaints. We should remember that he only deals with those complaints that have already been rejected by the firm involved.

In another embarrassment for the FSA, its own independent consumer panel, led by Ann Foster, said the FSA had simply not done enough on endowments.

The panel&#39s research shows that more than 50 per cent of endowment holders not only had no idea about the risks of endowment mortgages but also were told that they were either “certain” or “guaranteed” to pay off their mortgages. Unless the respondents to its survey were lying, three million endowment holders have a prima facie case for misselling.

Mr Tiner did go further than his predecessor in making noises gratifying to the consumer lobby. Life offices were “playing Russian roulette with their reputations”, he said, acknowledging there was evidence of “widespread misselling”.

This was a bit difficult to reconcile with the FSA&#39s earlier insistence that there were only “pockets” of misselling. How can “pockets” be widespread?

But there remains a fundamental ambivalence in the FSA&#39s approach to endowments. As well as making pro-consumer, anti-industry noises, it has also produced research directed at convincing us “hysterical” media types that we are going way over the top in our assessment of the problem.

One is the repeated insistence that endowment holders have not done so badly after all. The much reduced investment returns are only the flip-side of lower interest rates that have allowed them to pay much lower monthly interest payments. If endowment holders had invested their mortgage savings when interest rates came down, they would now be on target.

This is an abstract economist&#39s argument that is meaningless to punters and, more important, nothing to do with the FSA. The Financial Services Act 1986, as has often been said to the frustration of people seeking compensation, regulated not the sale of the loan but the sale of the endowment policy.

The FSA&#39s job in this context is, therefore, to look at the sale of the endowment, and whether it suited the aims of the investor when it was sold.

Would endowment holders have been expected to reduce their endowment contributions if interest rates went up? Of course not. They would, in many cases, have been penalised for it.

Neither can they be blamed for not increasing them when interest rates came down. Endowment holders are not economists. If anything, this argument simply increases the liability of the industry for failing to advise them to raise their contributions early on.

Similarly, recent FSA research sought to convince us that most of the 70 per cent of endowment holders with “red” letters had not done anything about it because they did not care.

It is true that endowments sold in the late 1980s and early 1990s are set against much smaller mortgages than those being taken out today. The average target for maturing endowments is, according to some figures, around £30,000.

Some endowment holders may already have redeemed their interest-only mortgage, converting it to capital repayment, when they moved house. But a significant proportion – again, one wishes we knew exactly what that proportion was – have retained their old interest-only loans.

The big danger is, of course, that when these mortgages mature, (and some are already maturing), mortgage lenders will want repayment of their original loan in full and will not be willing to wait.

The way things are right now, millions of homeowners will face demands for thousands of pounds to complete the repayment of their original loan – money which many of them will not have.

A kind lender might extend their repayment term, a hard-up lender might not. The homeowner will have no protection against the lender choosing to repossess them. Potentially it could produce a repossessions&#39 crisis to dwarf those of the past.

What is needed in this scandal is an end to that fear. Mortgage lenders have benefited from the sale of endowments to an enormous extent – witness the commission paid by the likes of Standard Life under its old deal with Halifax. And legally, various precedents suggest that, in spite of that tied agent/appointed rep status, the lenders may still share liability for misselling.

It is time for lenders to get together with life insurers to strike a deal guaranteeing that, no matter what happens to investment returns, no investor, or at least, no investor who was missold an endowment, should lose their home as a result.

Andrew Verity is personal finance correspondent at the BBC


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