Fewer 'lies' with self cert mortgage products, FSA finds...
There is no evidence that mortgage brokers are systematically still letting self-employed borrowers inflate their earnings, a report has found.
Market watchdog the Financial Services Authority (FSA) carried out a review of 39 small mortgage brokers and a "mystery" shopping exercise at 41 more.
Only three firms advised how clients could lie to obtain bigger home loans.
A problem with self-certification mortgages was exposed by the BBC's Money Programme in 2003.
Two years ago, the programme found that staff at some branches of the Birmingham Midshires building society and some estate agents were encouraging self-employed mortgage applicants to lie about their earnings.
Lenders usually base the size of a home loan on the amount a borrower earns, often lending no more than three times the client's annual salary.
Good practice?
The FSA said that since the BBC programme, lenders had tightened up their procedures and were now detecting more fraudulent applications.
The watchdog also has taken over formal responsibility for regulating the sale of mortgages, and issued a Good Practice guide for the industry in February 2004.
To ensure that companies are toeing the line, both the FSA and the Council of Mortgage Lenders (CML) have staged investigations.
Despite concluding at the start of 2004 that lenders had adequate controls for selling self-certificate mortgages, the FSA admitted that regulating these sales was still a high priority because "there was potential for abuse".
Later in 2004, the CML admitted lenders were still failing to verify borrowers' incomes in about a third of cases.
Poor record keeping
In its latest report the FSA found that at only three firms out of the 41 visited by the "mystery shoppers" were staff prepared to suggest ways their clients could inflate their incomes.
However, at the 39 other firms visited by FSA staff, there was widespread evidence of poor record keeping.
In almost half of the 249 individual mortgage sales that were reviewed, the broker was unable to show the necessary paperwork to prove they had assessed properly the ability of the borrower to repay the loan.
And in more than a third of cases there was no evidence to indicate why the broker had even thought that a self-certification mortgage was suitable.
"The findings on sales and advice from brokers show significant weaknesses which are disappointing," said Clive Briault, the FSA's managing director of retail markets.
However, "it is encouraging that we have found no evidence to suggest that salary inflation is widespread or systematic within the broker industry", he added.
The FSA said that it was following up with the mortgage brokers the problems that it found.
