'Unaffordable home loans' offered
Updated on 26 November 2007
Some mortgage brokers are offering people home loans that they know are unaffordable, the City watchdog has said.
A number of mortgage brokers are prepared to offer people mortgages that they know they cannot afford, while others are accepting self-certification business even when they have concerns that the financial information people have provided is implausible, the Financial Services Authority (FSA) said.
It warned that while many brokers are meeting the required standards of treating customers fairly, they were being undermined by the "negligence" and "wilful non-compliance" of others.
The regulator said several brokers were continuing to operate "well below" the standard required, with senior management failing to adequately monitor and control their firms' performance to ensure they were treating customers fairly.
As a result it said it had referred seven firms to its Enforcement division, while a number of other firms were being considered for referral. At the same time a further 65 firms have to undertake costly past business reviews or employ specialists to resolve their problems. A few firms have stopped doing business altogether until they can rectify their problems.
The failings came to light following four reviews of 345 mortgage brokers operating in both the prime and sub-prime markets carried out between June and September.
The review of brokers offering self-certification mortgages, which arrange loans for people such as the self-employed who cannot prove their income, targeted 48 firms, several of whom were suspected of breaching FSA rules.
Stephen Bland, FSA retail intermediary sector leader, said: "During the reviews we saw a number of good brokers who are meeting the required standards and they are being undermined by the negligence or wilful non-compliance of others.
"We also saw some who despite having some way to go, were willing to engage with us and be helped to improve their performance, which is why we are providing so much guidance following these reviews. However there are still an unacceptable number of firms unwilling to change and they are damaging the rest of the industry."
He added that there was a need for a big improvement in the way senior managers used information to ensure customers were being treated fairly. The FSA said it was publishing a series of case studies and examples of good and poor practice to help firms assess their progress and improve.
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