FSA Review of Sub-Prime Mortgage Market
FSA review reveals both good and bad practices, with 3 companies facing further investigation
9th September 2005
The Financial Services Authority (FSA) has released the findings of its review of compliance in the sup-prime (adverse or bad credit) mortgage market, saying it has found a mixed picture with both good and bad practices.
The mortgage industry came under FSA regulation in October last year, and in this first review of compliance the sub-prime area 31 small brokers were visited, with 210 case files assessed.
The FSA found that in 'too many cases' the brokers were unable to show that required procedures on advice had been followed. The findings included:
- Insufficient information was obtained from the customer in 60% of cases
- There was a lack of evidence that a recommended sub-prime mortgage was appropriate for a customer in 80% of cases
- In 67% of cases involving debt consolidation, the firms could not show that recommendations were appropriate, in that they had no evidence of having taken account of the additional requirements related to consolidation mortgages
The FSA said that it was hard to measure the impact of the failings on consumers, but that it seemed to be more a case of poor record keeping than intentional mis-selling.
However, 3 companies face further investigation after evidence of possible malpractice was uncovered, including falsely inflating the applicant's stated income in order to get approval for a larger mortgage amount.
The FSA plan to review the sub-prime market again early next year.
Read More: FSA Press Release
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