Mortgage Day is almost upon us and brokers, introducers, networks and lenders are thinking through their regulation plans and asking themselves how it could go wrong.
Charcol technical director Ray Boulger is warning the FSA to be on the alert for chaos as some lenders and intermediaries are yet to prove they are ready.
The MCCB estimates that 71,000 mortgage professionals will be joining the regulatory regime on October 31. Boulger says: “The closer to M-Day we get, the more worried we are. I hope the FSA has a plan B.”
His main concern is with key facts illustrations. He warns that a number of players are still not ready with their KFIs which could cause considerable problems in the market. Lenders without KFIs will be unable to trade in regulated products.
BM Solutions says it had its KFIs ready three weeks in advance of regulation while Infinity Mortgages claims to have been five weeks ahead. BM head of product strategy Steve Sandiford says this has given brokers an opportunity to acquaint themselves with the online document.
Infinity Mortgages, which does not deal directly with the public, designed its KFI with its new online system. Sales director Chris MacMahon says: “We had the benefit of being new to the market and not having to overhaul any antiquated systems.”
Boulger says those lenders which have not had a chance to test out their KFIs could hit technical problems initially and may not be able to resolve some glitches. He says: “The problem is that by the time you get rid of 50 bugs, you create another 30.”
The FSA is refusing to give an extension of time, saying lenders have had a year to construct KFIs.
But if a significant number of the lenders are going to have serious problems from November 1, the FSA may have to decide whether it will give any waivers. Boulger says there is a probability this could happen and asks “What exactly has been the point of regulatory deadlines if the regulator ultimately grants extensions?” The MCCB, in its final annual report on key issues, says the KFIs, which is largely a product-specific document, does not explain many general aspects of a mortgage that had been explained under the mortgage code.
Aspects that could be included are how interest is calculated, descriptions of different interest rates and types of insurance products. It is recommending that a booklet should be produced explaining these general issues but emphasises that it is the role of the lender to produce this and not the job of the FSA.
The MCCB also warns that the overall costs of regulation have grown significantly in recent years. The direct cost to the industry has been £5m over the five years of the MCCB's life. It warns that these costs will grow significantly under the new regime.
MCCB director of communications Brad Baker says: “In a few years time, the cost of regulation will outweigh consumer ben-efits. This should be taken as an opportunity for a fundamental review of regulation.”
MacMahon says: “Regu-lation is just one step of the development of the mortgage industry. It is not the end of the matter.”
Further confusion has arisen over the handover from MCCB to the FSA. The FSA says MCCB letterheads and other MCCB material can be used until July 15, 2005 but the MCCB has told firms in recent guides that they should not issue any material to customers which may indicate that the mortgage is covered by the MCCB rules after M-Day.
This includes letterheaded paper, booklets and any material that indicates the lender or intermediary is covered by the mortgage code.
Premier Mortgage Services head of mortgages John Malone says: “This is an exceedingly confusing situation for advisers and lenders.”
An additional cause of uncertainty is the intermediaries labelled as “deemed to be authorised” by the FSA. These intermediaries have yet to receive their FSA numbers although some lenders are happy to accept applications from them.
Malone warns that lender systems may not be able to cope with the additional intermediary information as it comes flooding in. Figures in the mortgage industry are labelling these individuals as “deemed or doomed”.
The MCCB has also found in its consumer research evidence of confusion in the minds of consumers over whether they have received advice on a mortgage or just information.
The MCCB is concerned that the use of scripted questions in non-advised sales as permitted by the FSA may lead consumers to believe they have received some form of recommendation. The MCCB recommends that in all non-advised sales, consumers should be warned of the consequences of not getting professional advice. It also warns mortgage sales staff to use the title “adviser” only if they are actually providing advice. If this is not clarified after regulation, there may because for confusion.
Malone also says the FSA mortgage enforcement officers may not be adequate after M-Day. He salutes the role that the MCCB has played over the years and especially MCCB compliance director Richard Fox and the staff he recruited. Malone says: “The FSA enforcement officers are not from the same background as MCCB staff. They are rules-driven – trainee solicitors and accountants – and will not take a pragmatic approach to the industry.”
So with fingers crossed, the mortgage industry joins the countdown to regulation. Malone says: “Is there an air of optimism?I would say at this moment that everyone is bracing themselves.”