Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

FSA finds poor practice by intermediaries and lenders within sub-prime mortgage market

Housing-Market / UK Housing Jul 04, 2007 - 05:13 PM GMT

By: Submissions

Housing-Market The Financial Services Authority (FSA) today published its latest review of the behaviour of intermediaries and lenders within the sub-prime mortgage market, which services consumers with impaired credit histories. It has found weaknesses in responsible lending practices and in firms' assessments of a consumer's ability to afford a mortgage. As a result the regulator has started enforcement action against five firms.


The thematic work reviewed 11 lender firms, representing more than 50% of the sub prime market by volume of sales. It also included 34 intermediary firms covering 485 customer files, of which 90 were tracked from the contact made with an intermediary through to the lender's decision.

While the research found no significant evidence of sub-prime mortgages being sold incorrectly to prime customers, several other issues were identified for both intermediaries and lenders when selling to sub-prime customers.

For Intermediaries:

  • In a third of the files reviewed there was an inadequate assessment of consumers' ability to afford the mortgage.
  • In almost half of the files there was an inadequate assessment of customers' suitability (e.g. needs and circumstances) for the mortgage.
  • In over half of the files customers had self certified their income but it was not clear in many cases why they had been advised to do this.
  • Significant numbers of consumers were advised to re-mortgage, thereby incurring early repayment charges, without the adviser being able to demonstrate that this was beneficial to the customer.

For Lenders the main weaknesses were found in their lending policies:

  • None of the lenders adequately covered all relevant responsible lending considerations in their policies. For example, some firms' lending policies contained unclear affordability or self-certification requirements.
  • In many cases, lenders did not apply their own policies in practice. For example, some firms failed to check the plausibility of information, as required by their own lending policy.
  • There were also failings by lenders to monitor the application of their policies, which resulted in the approval of potentially unaffordable mortgages.

The FSA has now referred five firms to enforcement, including those whose failings were identified during the initial study of this market in 2005, and who failed to show adequate improvement.

Clive Briault, Managing Director of Retail Markets, said:

"We are very concerned about these findings. Consumers in the sub-prime market are vulnerable people who may have high debts or a bad credit history. It is therefore important that they are properly assessed and advised. We will not hesitate to take action where we find bad practice.

"Poor sales practices in this market may lead to serious wider consequences. The high level of sub-prime arrears in a benign market raises some important questions about the consideration given to affordability by lenders and intermediaries when undertaking this business. All mortgage firms must ensure they are treating their customers fairly by undertaking robust assessments of affordability and ensuring they have sound, and consistently applied, lending policies.

"Consumers should make sure they understand the risks, costs and charges when taking out a sub-prime mortgage, particularly at a time when interest rates are rising. They should also not be tempted to inflate their salary, which is a criminal offence."

The FSA will continue to monitor firms operating in the sub-prime market and will continue its focus on debt and affordability for the latter half of 2007. This will include specific work on self-certification.

The FSA is also publishing today on its website further mortgage thematic findings:

Mortgages into retirement

More than a quarter of 22 lenders failed to comply completely with responsible lending requirements, and several indicated that they were unclear what was required of them. The FSA will be publishing a good and poor practices guide on its web-site. Firms are expected to read the guide, consider whether their policies comply and if not make appropriate changes.

Interest-only mortgages

The project reviewed the approach to interest-only lending by 11 sub-prime and nine prime mortgage providers. The review specifically looked at how lenders take account of consumers' repayment strategies for interest-only loans. The FSA concluded that many firms need to do more to ensure that their responsible lending policy provides a clear basis against which they can consider the plausibility of a borrower's repayment strategy. The FSA has published some good practice examples on the website to illustrate our findings.

Notes

  1. Full details of the findings of the review of the sub prime market can be found on the FSA's web pages for:
  2. Further information on Interest only mortgages and Mortgages into retirement projects .
  3. For clear, impartial information about mortgages - including how to budget and work out monthly repayments - consumers can use our Buying a home guide on Moneymadeclear.
  4. The FSA's Retail Thematic plan , during 2007/2008 will be focusing on ensuring firms are delivering fair outcomes for consumers; debt and affordability; and improving the quality of advice.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in