Coming up: mortgage misselling scandal

Dan_Collins_2

mmm you have to ask, Mr Client if you cannot afford the mortgage why did you sign the mortgage offer that is posted to your home address in your name and confirms all the terms and conditions as you make the biggest purchase of your life??????????

Client: er dunno, broker just said sign it!

FOS: we dont care we cant blame the public, we cant afford to fight the lenders on mass, so we blame the brokers!!

I think we have an issue, ppl have been able to borrow way to much for to long, this pushed house prices up and our greed is or will be our downfall!

But hey dont panic, Alistair Darling has the answer, he has been a mortgage broker for many years and says fixed rates are the answer! There we go, all problems solved!!

Trollfever

During that time our source saw the top salesman, who sold our cook her mortgage, shredding documents. When the FSA finally investigated, many documents were missing. But even so, it discovered an estimated 40% of mortgages where the paperwork had survived should never have been approved. In 2005 the same year as this investigation, Home & Counties owner and managing director Mike Bowers paid himself one and a half million pounds. He didn't personally sell the mortgage in question but he was told about it later and took no action against the salesman. I wanted to ask Mike Bowers about how many fraudulent mortgages his company has been involved with. So I tried to meet him as he turned up for work.

From:

http://news.bbc.co.uk/1/hi/programmes/panorama/7037635.stm

ManAtHome

Dan_Collins wrote: »

But hey dont panic, Alistair Darling has the answer

Hmm, that's a good angle - the first complaint about mis-selling should be directed at the tw@s who were promising stability, stability, and even more stability in the miracle eonomyland where nothing could ever go wrong and things (and presumably disposable income) could only get better...

Oh, and aren't we throwing enormous amounts of taxpayer's money at the "regulators" (aka the "wellaftertheeventulators") - maybe the first x million of compo could come out of their department budgets?

EdInvestor

dunstonh wrote: »

Remember that more endowments pay out redress because of missing or incomplete documentation than actual complaints upheld due to mis-selling. It is that large number of poor quality client files that encouraged many of the claims companies to put in complaints whether there was a mis-sale or not, in the hope that they would get lucky.

Documentation of risk factors is the fundamental key to defence against misselling.It's the seller who needs to show that the sale was fair.If he can't he's liable for misselling.

dunstonh

EdInvestor wrote: »

Documentation of risk factors is the fundamental key to defence against misselling.It's the seller who needs to show that the sale was fair.If he can't he's liable for misselling.

Actually, in a court of law it isnt. However, in the court of the FOS it is. Court of law says they have to provide evidence of a mis-sale. Court of FOS says the adviser has to provide evidence it wasnt a mis-sale. Innocent until proven guilty is the basis of UK law. However, not when it comes to the FOS.

I bet you that there will be plenty of consumers who will lie in complaints just as the lied on the application. Thats the problem with taking on clients who are willing to tell lies. They can turn those lies on you later. Especially when they get certain claims companies telling them how to lie to get the best chance of a payout.

Where fudging of the affordability has taken place, it nearly always has been done with the knowledge of the borrower. That doesnt forgive the broker in question but it does take two to tango.

I still cannot get past the fact that the consumer knew the monthly repayments. They are issued in a KFI given to them at point of sale. A copy is sent by the lender. The offer letter confirms the amounts. The direct debit notification confirms dates and amounts. 3-5 years later, its a bit late to say "I couldnt afford it" and then look for someone to blame.

homer_j_3

Trollfever wrote: »

From:

http://news.bbc.co.uk/1/hi/programmes/panorama/7037635.stm

That was a very biased and unbalanced report, something we have got used to from the media of late.

HelpWhereIcan

dunstonh wrote: »

Actually, in a court of law it isnt. However, in the court of the FOS it is. Court of law says they have to provide evidence of a mis-sale. Court of FOS says the adviser has to provide evidence it wasnt a mis-sale. Innocent until proven guilty is the basis of UK law. However, not when it comes to the FOS.

TBH, I think the number of complaints the industry will have to deal with will be a bigger problem than the number of upheld complaints. Most post 12/2004 mortgage files are significantly better than the almost non existent endowment files that the claims companies have had a field day with over recent years.

However, in the IFA sector it is only a small % of endowment complaints that are upheld compared to the direct sales force complaints and I would expect that this would be reflected in any future mis-sale claims pattern with the banks the main targets of claims firms. Well them and the ever decreasing number of sub prime only brokers - the FSCS may be very busy dealing with that little lot.

dunstonh wrote: »

I bet you that there will be plenty of consumers who will lie in complaints just as the lied on the application. Thats the problem with taking on clients who are willing to tell lies. They can turn those lies on you later. Especially when they get certain claims companies telling them how to lie to get the best chance of a payout.

Where fudging of the affordability has taken place, it nearly always has been done with the knowledge of the borrower. That doesnt forgive the broker in question but it does take two to tango.

The problem for Independent brokers will be any reasonability test that is applied. ie If a broker could have been reasonably expected to see that the information being given was inaccurate they will be held at fault.

So the broker who submits a self cert application for a car valeter earning £60k without asking questions about how many employees and contracts with car dealers he has will not be able to deny all knowledge when it turns out that the guy worked for a dealership on a self employed basis 3 days a week and earned £12k! (a genuine example that nearly got past a collegue of mine until he asked a bit more).

dunstonh wrote: »

I still cannot get past the fact that the consumer knew the monthly repayments. They are issued in a KFI given to them at point of sale. A copy is sent by the lender. The offer letter confirms the amounts. The direct debit notification confirms dates and amounts. 3-5 years later, its a bit late to say "I couldnt afford it" and then look for someone to blame.

It will be argued that the customer and adviser focussed only on the payments during the incentive deal and the impression I get is that it is the SVR payments after the deal ends that will be the problem. eg If a client tells you he can afford £600 pm and takes a 2 year deal at £500 pm which then goes to £750 pm on SVR it could be argued that you did not take into account long term affordability even though the initial payment was well within their budget.

Arguing that the customer could remortgage onto a better deal than SVR at the end of 2 years could be hard as it could be countered that there is no way to predict future interest rate movements and, indeed the current climate and credit crunch shows how dangerous relying on being able to get a good deal every few years is - especially when someone has had financial difficulties in the past.

We will have to show that we have taken the long term into account

eg a wife returning to full time work when a child goes to school at the of the deal term, or someone starting as a solicitor who can expect significant increases in salary can be reasonably expected to be able to afford more in the future than now.

Someone who has been doing the same low paid job for a long time with no prospect of advancement could not be expected to have the same increase in affordability. How can you justify arranging their mortgage on the figures I have given above?

Some people are better on long term deals for affordability reasons.

If we can be seen to have 'educated' the customer into an expectation of remortgaging every couple of years when they would have been better with a lifetime tracker or long term fix we could be in trouble.

This is where I come back to my point of documenting what your advice was and if the customer goes against it making sure that the rwl says so and warns them that they have to be looking at the long term affordability.

geoffky

no one put a gun to anyones head did they,,mabe time for school lessons on finance???
stupid people who do not know what compound interest or a.p.r are should never be near a mortgage...

homer_j_3

Just had this in the inbox...

http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=161415

Trollfever

From a post today:

We have seen an IFA who has tried to "sneak us under the radar" for a fast track mortgage with the nationwide but they asked for prof of 2 salaries (obv can not provide, even though i can prove my income). The other option he has mentioned for us is to "self-certify" our income - he seems reluctant to do this for us and talked vaguely about higher interest rates and fees....

And:

Many more seek help with mortgage arrears - new Citizens Advice figures

18-03-2008

More people are seeking help because they are having problems paying their essential household bills, according to figures released by national charity Citizens Advice
New debt figures released today show that Citizens Advice Bureaux in England and Wales saw mortgage arrears problems shoot up by 35% in the first two months of 2008 compared with the same period in 2007. The new figures also reveal continuing increases in problems relating to basic essentials such as gas and electricity, water, telephone and council tax debts.
A survey* of almost three-quarters (73%) of all Citizens Advice Bureaux in England and Wales reported that they dealt with 215,000 new debt problems in the first two months of 2008 alone.
The new figures reflect recent increases in the cost of living and suggest a growing number of people are having difficulty paying essential household bills. Debts relating to credit, store and charge cards still remain the largest category of debt. Unusually for the time of year, credit card debt problems were down by 9%, while problems with overdrafts were up almost 7% on the same period of the previous year.

From:

http://www.citizensadvice.org.uk/press_20080318