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End of liar loans

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Bloody good idea.

http://www.guardian.co.uk/business/2009/may/12/self-certified-mortgage-fraud

FSA may end 'liar loan' mortgage fraud

Regulator admits mistake in allowing growth of self-certification, which accounted for 45% of home loans at height of housing boom


Controversial "self-certification" mortgages – dubbed "liar loans" – may be banned after the Financial Services Authority revealed today that almost half of all Britain's new home loans at the height of the property boom were being granted without checks on earnings. :eek:

Jon Pain, the regulator's retail markets managing director, admitted that the FSA may have made a mistake in giving into the mortgage industry, which fought its proposals to tighten up the rules on self-certification loans.


Self-certification loans allow borrowers to verify their own income without proof, such as payslips. They were designed for the self-employed and freelancers, whose incomes are irregular, but have been hugely controversial. Many firms let borrowers inflate their salaries to obtain bigger home loans, and many people on these deals are now in financial difficulty.


In a speech, Pain said a key problem was that lenders stopped verifying income when considering home loan applications. He said that in 2007, 45% of all mortgages were made without a check on the stated income. "Many of the specialist lenders heavily marketed and sold self-certified products, and a large percentage of these have led to correspondingly high levels of arrears and fraud," he said.


Lenders also saw affordability checks as the responsibility of the broker or financial adviser, he said. "Given that so many self-certification mortgages have been sold, and so many of them are now in arrears, should there be more constraints on this type of lending?" asked Pain, who was speaking at an FSA mortgage conference.


In 2002, he said the FSA had proposed banning employees from taking out self-certified mortgages. "The industry disagreed, and we relented … Since then, we have seen a significant increase in the amount of self-certified lending to employed customers for no perceptible reasons; with hindsight, this may have been a mistake."


The FSA will now be looking at whether the rules should be changed to insist on income verification for all mortgages, with lenders required to check the plausibility and authenticity of the documentation provided by the customer before an offer is made. This would mean the end of self-cert home loans.

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