Coming up: mortgage misselling scandal

EdInvestor

.... homeowners who have been given mortgages they cannot afford to repay could be in line for thousands of pounds of compensation in what could be the next big financial misselling scandal. Lenders have been helping vast numbers of first-time buyers on to the property ladder in the last few years by given them mortgages up to six times their salary.
Now, the head of the Financial Ombudsman Service says he will not hesitate to give 'significant awards' to customers who he believes have been missold mortgages that many of them are now struggling to repay. 'We see cases where I find it difficult to imagine how the lender could have considered the customer capable of maintaining payments,' said Tony Boorman, principal ombudsman. 'It seems that the advice has been more about generating commission or fee income than a fair assessment of the interests of the customer.
The Financial Services Authority estimates that nearly a third of all mortgages sold in the last two-and-a-half years put the borrower into a high-risk category.

The Observer

Presumably this is going to land mainly on brokers rather than lenders.

Looks like more closures ahead then.

UK007BullDog

Gloating......

Well, I wish I could let my past employers know by rubbing it in.
My sense, my knowledge and my gut feeling of what is right and what is wrong, for not being a hard nosed seller, for refusing clients..... pure vindication!!!!!! :cool: Ha! :T

However I dont think the customers who so badly, madly, wanted that mortgage on a 5+ income multiple should get the compensation. It should be paid to charity. 95% of the borrowers knew what they got into.

UK007BullDog

I dont think it will hit brokers much. We only sell the products the lender gives us. If the lender would not give those income multiples in the first place there would not be this problem now.

The lender gives us the information of income multiples. Some people on very high incomes can borrow up to 10 times. So its the lender at fault for being so greedy.

EdInvestor

UK007BullDog wrote: »

The lender gives us the information of income multiples. Some people on very high incomes can borrow up to 10 times. So its the lender at fault for being so greedy.

Possibly so but it's the 'advice' that's regulated, not the product. So the complaint goes to whoever sold you the mortgage.If a broker is involved, s/he is in the front line, unless the deal was done on an execution-only basis..

dunstonh

I have seen similar articles but I don't see it happening. At least where there is no fraud involved.

If someone goes to a broker to get a mortgage and a broker arranges that legitimately and issues all the required documentation then it would be extremely unfair to then complain against the broker.

There is increasing pressure on the complaints system with the lawyers now getting involved stating that the FOS rules on cases in favour of consumers that would not be ruled in the same way in a court of law. I think if there was another large scale compensation attempt, the companies wouldnt sit back and take it but use the courts to fight the FSA/FOS.

Personally, I think it would be a disgrace if people could shirk their liabilities because they havent been able to budget correctly. These people knew the monthly costs before they entered into the agreement. To then cry foul and get their mortgage paid off would be unfair on all those that do budget correctly.

Many of the mortgages in question though will be self cert. Whilst brokers who have fraudulently adjusted applications will be in trouble, those that havent will be protected by the fact that self cert didnt require much verification on income.

Also, complaints would be reviewed based on the rules in place at the time and mortgage regulation is light touch currently and was very very light touch not too many years ago. The other thing is that many people remorgtage every few years and if they remortgaged by doing it themselves or use a different broker then they break the link with the original sale.

UK007BullDog

Ah yes, I see what you are saying. But I still think it will be hard for people to claim.

A lot of the high income multiples are from people who claim their income will go up in the future. So they should be able to afford the mortgage in the future.

I have no control over the person leaving me after they got their mortgage. They could go crazy and borrow on CC's, loans and hire purchases. They could lose their jobs, change jobs. They could have lied about their incomes or outgoings..... There are so many variables, its going to be hard to prove that at the time the adviser was at fault for advising that product.

All this will do is to force the advisers down the non-advised route. And the customer will chose the mortgage. A lot of the banks are doing this now so they cannot be sued for advice.

So maybe you are right, some brokers might close down as their insurances will pay out but might not be able to get new cover. I would not operate without protecting myself. Then I would only give non-advice. That would be a sad day and might mean I leave the industry and retrain in something new.

turbobob

I wonder what these "significant awards" would be based on? Bearing in mind the principal of putting the customer in the position they would have been in if they hadn't been given the advice.

EdInvestor

Earlier article

Anyone who makes a loss after being persuaded by a broker to mis-state earnings for a self cert would likely have a case.

ManAtHome

EdInvestor wrote: »

Anyone who makes a loss after being persuaded by a broker to mis-state earnings for a self cert would likely have a case.

But don't they sign the application stating that all information is accurate? Besides that, must be extremely difficult (if not impossible) to prove that a broker encouraged the "exaggeration".

UK007BullDog

It would be a "he said, she said" argument.

Hence a lot of brokers are now spending money on all kind of information storage gadgets where even email and text messages are being saved. Telephone conversations being saved and some even tape their complete chats with customers. Just to protect themselves from a claim.

UK007BullDog

Read the articles. It seems like the stable doors being closed (lenders pulling out from subprime and self cert) after the horse bolted (many years ago).

I still stick to my opinion if the lenders would not have offered there would not be this problem now.