Mortgage broker loses misselling case!

macaque_2

A housing association tenant, Brown had the valuable promise of a rent fixed for life. However, a mortgage adviser persuaded him to buy the property and failed to consider "what would happen when the attractive discounted rate [set up on that mortgage] ended", according to an FOS spokeswoman.

http://www.guardian.co.uk/money/2009/mar/22/repossessions-mortgages

Is this the beginning of another financial services misselling scandal and will claims will be extended to people who were given poor mortgage deals?

http://www.timesonline.co.uk/tol/money/property_and_mortgages/article5775156.ece

HelpWhereIcan

A little bit disingenuous to try and link the two articles you have.

The first talks about how the FOS found against the broker because they had not ensured the mortgage was suitable on an affordability basis - not whether there may have been cheaper deals available direct which is the point of the second.

MCOB 4.7 is not aimed at the broker/direct argument. It is there to make sure that the broker gets enough 'Know Your Customer' information such as income and expenditure, planned retirement age, retirement income etc etc.

As long as the mortgage is suitable for the customer's needs and their situation based on that information, it does not matter that there may have been other deals available direct or through other brokers (not all exclusives are available to all brokers).

MBOB allows for suitability to be based on matters other than rate e.g. flexible features, lender's service record, lender's retention policy, follow on rate etc etc

This states mortgage advice must be "suitable for that customer" and that advisers "must make and retain a record" of it being suitable; this is known, crucially (and rather technically), as complying with section 4.7. Breaches of the MCOB rules are "actionable at the suit of a private person who suffers loss as a result", under section 150 of the Financial Services and Markets Act 2000

The highlighted line hints to me that the broker fell foul of record keeping requirements (as many have done with endowment complaints) so even if they did assess and discuss affordability they only have themselves to blame for not recording it properly.

It could be the start but record keeping on the whole is significantly better than in the past and people will need to be able to show actual missconduct in most cases rather than just rely on poor record keeping on the part of the broker

Philip Ryley, head of financial services and markets at solicitor Michelmores, is more cautious. He says: "It really depends on each individual case as to whether they have received a service which would breach MCOB rules. It is an issue that may be raised before district judges [deciding repossession cases].

"If it develops wholesale, it devalues the meritous cases that exist. The courts will soon become familiar with these arguments and will then require the borrowers to produce evidence at an early stage. to root out frivolous or unsubstantiated allegations."

Though there may be concern some borrowers might try to exploit the MCOB rule without good cause, there appear to be many cases of people being mis-sold mortgages they could not afford.

macaque_2

HelpWhereIcan wrote: »

A little bit disingenuous to try and link the two articles you have.

Good grief! Are you trying to suggest that staying silent about cheaper deals is not tantamount to misselling?

Gorgeous_George

One problem may be the term 'Mortgage Adviser'.

People who sell toffee aren't called 'Toffee Advisers'. We don't have 'Car Advisers'.

Let's rename them 'Debt Salesmen' or 'Mortgage Sales Assistants'.

GG

HelpWhereIcan

macaque wrote: »

Good grief! Are you trying to suggest that staying silent about cheaper deals is not tantamount to misselling?

Yes ... and so is the FSA

http://www.fsa.gov.uk/smallfirms/resources/faqs/dual_pricing.shtml

There have always been certain lenders who choose not to offer their products through intermediaries, and others who differentiate pricing depending on the channel, for example those offering 'exclusives' to certain mortgage clubs or special 'internet-only' rates. It follows from this that not every product on the market will necessarily be available to any one intermediary - something which our definition of whole of market takes into account.

So for example, if a whole of market intermediary recognises that, in current market conditions, there may be more competitive products in the market other than those available to him, and that these may be of interest to a particular customer, we think that there must be acknowledgement of this. We think that in such cases the intermediary should clarify to their customer that, while they are not tied to a particular set of providers, there are certain deals only available direct from lenders; and that if the customer want to investigate that sector of the market for themselves they may find more competitive products. However, we don't expect the intermediary to point to a specific product or provider, and we would have no difficulty in the intermediary drawing attention to different levels of service.

As I said in my original answer, this will not be the issue that the broker was found to have been guilty of mis-selling on. The fact that the mortgage was deemed to have been unaffordable was.

Most advisers will tell the client that cheaper deals may be available direct and that they should investigate those themselves.

Gorgeous_George wrote: »

One problem may be the term 'Mortgage Adviser'.

People who sell toffee aren't called 'Toffee Advisers'. We don't have 'Car Advisers'.

Let's rename them 'Debt Salesmen' or 'Mortgage Sales Assistants'.

GG

Dual pricing in favour of the branches is a recent phenomenon and symptom of the current financial climate. In recent years the pricing balance has been in favour of brokers as lenders sought distribution and volume and offered exclusives through brokers that were better than those available to their branches or on the internet.

The Association of Mortgage Intermediaries and other adviser bodies have been at the forefront of attempts to get the FSA to help eliminate dual pricing but the article I linked to shows what they are up against ... a regulator so deeply in the pockets of the large lenders and insurers (who pose the greatest risk to customers) that they can sometimes be thought to be ignoring the interests of customers in order to protect the big players (who provide most of the FSA executive).

The Association of Independent Financial Advisers has also tried to persuade the FSA to make the distinction between Independent Advice (which has to be paid for by fee or a combination of fee and commission) and Sales (which is what is generally provided by direct staff and could be entirely 'free') but the resistance from the banks etc has been, unsurprisingly, stiff.

I don't make the rules but, as I said, it is wrong to claim that a mis-selling claim could be brought simply because there may have been a cheaper deal available elsewhere. To try and give people the impression that it could is to mis-represent the situation.

People in this country need to get beyond the idea that completely impartial advice can, or should, be completely free.

If you want someone who will look at direct deals as well, you would be better to look at using those brokers who charge a "search and reccomendation" fee and will include those deals that are only available direct.

HelpWhereIcan

http://www.guardian.co.uk/money/2009/mar/22/repossessions-mortgages

A housing association tenant, Brown had the valuable promise of a rent fixed for life.

So Mr Brown, a social housing tenant, possibly classed as financially vulnerable and probably on a low income had a tenancy that offered a rent fixed for life.

Let's say that rent was fixed at £400 pm for life.

However, a mortgage adviser persuaded him to buy the property

by using the age old tactic familiar to Right to Buy Salesmen

"Hey Mr Brown, look at this deal I can get you. It's only £350 per month so you'll be paying less. Instead of having £300 per month spare you have £350 and you get to own the property"

and failed to consider "what would happen when the attractive discounted rate [set up on that mortgage] ended", according to an FOS spokeswoman.

In other words the broker 'forgot' to mention that the lender's standard variable rate was

a) variable and

b) likely to lead to a payment of £475 per month once the discount ended.

Let's say Mr Brown had a history of being 'unreliable' when it comes to managing his affairs, had some adverse credit already etc etc yet the broker did not think to document all the warnings given to Mr Brown (assuming they were given).

Mr Brown comes to the end of his discount having missed (or been late with) the odd payment - he sees this as no issue as he always made it back up and the housing association were always 'fine with it'.

Mr Brown now finds that these missed payments and his credit history mean he cannot remortgage and is now stuck on £475 per month and rising.

He [strike]could[/strike] should have been on his £400 per month guaranteed rent with no costs of ownership (maintenence, insurance etc) but has been sold a mortgage on the basis that it was more affordable when (based on what was possibly known about his finances and financial history/habits at the time) it obviously was not.

Nowhere does the issue of dual pricing come into it.

Had he been sold a mortgage that had a SVR giving a payment of £450 after the discount (or possibly worse, a bigger discount to £325 pm before going to £475 pm) the mortgage would still have been mis-sold as unaffordable.

That's where the FOS would have found against the broker, and that's where they would have found against the lender had he gone direct.

... unless, of course, the lender offered an 'information only' service through their inhouse 'advisers' or their website (as many do).

Gorgeous_George

In the end, Mr Brown would own the house and would have neither rent nor mortgage to pay.

Time to change 'whole of market' to 'some of market'?

GG

HelpWhereIcan

Gorgeous_George wrote: »

In the end, Mr Brown would own the house and would have neither rent nor mortgage to pay.

But he doesn't because he would never have been able to afford the mortgage on standard variable rate

... whether it was arranged direct with a lender, by a broker with a limited panel, by a broker with 'traditional' whole of market access or by an Independent Adviser who charges a fee to look at all deals including direct ones.

Gorgeous_George wrote: »

Time to change 'whole of market' to 'some of market'?

GG

However, yes, the term 'whole of market' is mis-leading and has muddied the water. Martin and most of the brokers on this forum have pointed this out for some time.

Mortgages should be arranged by:

1. Tied Company Representatives who sell only the products of one lender (generally their employer)

2). Independent Advisers who charge a fee for their services (which can be offset by any commission) but will look at all deals from all lenders.

The FSA will have to act to make sure that lenders give the required information, KFIs etc to Independent Advisers so they can give advice on the direct deals, but I suspect that this will happen when their Retail Distribution Review is extended to mortgages and 'factory gate pricing' becomes the norm.

Until then, mis-selling will not be found where a broker does not look in detail at direct only deals.

Mr Brown was sold an unaffordable mortgage - not one that was more expensive than might have been available by going direct to the lender.

dunstonh

Good grief! Are you trying to suggest that staying silent about cheaper deals is not tantamount to misselling?

Correct. Always been the case and always will be. If the product provider does not make their products available through your distribution channel then you do not need to make them aware of it unless you are charging fees for your service.

Time to change 'whole of market' to 'some of market'?

Independent paid for advice is better as that is whole of market. The "whole of market" classification is most of market except.

macaque_2

HelpWhereIcan wrote: »

Yes ... and so is the FSA

Endorsement from the FSA is not exactly encouraging given their record.

If a mortgage adviser knowingly withholds information about better deals from customers, that is a form of misselling. Someone should put this to the test.

dunstonh

Endorsement by the FSA is important as the FOS give judgments based on FSA guidelines and rulings. So, if the FSA make an announcement that something is the case, then complaints will be upheld/rejected on that basis. This isnt something new though. Its been like this for decades in investment class. Its only a relatively new consideration for mortgage class given the increase in dual pricing that occurred at the time.