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and if there were other factors that were taken into account,” he says. “This will have to be looked at on a case by case basis. It will also depend on whether advice was provided.” Pricing is the key. Lenders priced sub-prime more and more competitively to grab market share while also getting heavily into bed with various packagers and brokers – some of whom ceased to do any prime business at all. The question that raises is where the prime leads they got in went, if not to sub-prime lenders on sub-prime priced loans?


“This is not about sub-prime lending,” says Clifford. “In reality that allowed a lot of people to create capital appreciation they would not have been able to achieve without sub-prime lending. The go to rate is the problem. If a borrower was made sub-prime when in retrospect he could have fitted prime criteria why was he sold a sub-prime deal at a rate of 10 or 11%? “There are potentially tens of thousands of people who are in this situation and I can envisage them claiming. It’s my belief that there were some brokers who were so cosy with some sub-prime lenders, they wouldn’t send prime borrowers to prime lenders.”


skeTChy reCords Documenting the evidence of why borrowers were given the deals they were is crucial but as Malone raises, there is a precedent of patchy record-keeping which could lead to brokers coming unstuck. A spokesman for the Financial Services Authority says: “The FSA does not investigate individual complaints, so we can’t to comment on the impact a lack of documentation would have on an individual complaint. “If a prime customer approaches a


broker who only has access to sub-prime products, that broker can not recommend the ‘least worst’ mortgage (in this case the sub-prime product) to that customer. “If a broker advised a customer to take out a mortgage which is not suitable for them based on their needs and circumstances, there is a risk that the broker has provided unsuitable advice. “If that is the case, the customer may wish to first complain to the broker and


by


Dominik Lipnicki, director, Your


Mortgage Decisions


It is absolutely and fundamentally vital to our industry that consumers have an opportunity to complain when wrong doing is suspected. This process must be readily and openly available and not daunting, lengthy or expensive for the general public. That said, there must be equal assurances and protection given to the mortgage industry and retrospective regulation should not be used to punish compliant brokers. As far as “no win no fee” and “ambulance chasing” is


subsequently, if unsatisfied with the response, to the Financial Ombudsman Service.”


Although it is not the FSA’s responsibility to deal with consumer complaints, it has in the past fined various brokers for failing to keep adequate records. In 2009 Nottingham mortgage broking firm Gillen Farrelly Independent Advisers was fined £17,500 for failing to ensure it provided suitable advice which exposed over 80 customers to the risk of being sold an unsuitable self-certified mortgage. In 2008 Doncaster mortgage broker


Orchid Financial was fined £34,500 for failing to ensure it provided suitable advice which exposed over 900 customers to the risk of being sold an unsuitable mortgage. Among other failings at both firms was the failure to “obtain and record from customers all information likely to be relevant to the suitability of its advice, including financial information” and failure to “record how or why recommended mortgage contracts were suitable”. At the time Georgina Philippou, head of


retail enforcement at the FSA, said of the Gillen Farrelly case: “Brokers advising on mortgages need to give suitable advice to ensure that customers are not unduly exposed to financial hardship in the future. “This is especially important in firms like Gillen Farrelly who advise customers who might be consolidating debts or have


34 mortgage introducer OCTOBER 2011


concerned, the government needs to step in to regulate the claims sector so that these firms also maintain professional, responsible and ethical standards. One simple way to rid us of pure “chancer” complaints is to make the claims firms pay the FOS fee if the complaint is without foundation. It is grossly unfair and illogical at present that innocent mortgage brokerages have to foot this bill, irrespective of the Ombudsman’s verdict.


I’ve said it before and I’ll say it again, for one man bands and small companies this constant risk is damaging and impossible to insure against. Regulation is here to stay and rightly so but it needs to be a two way street. At the moment our industry is taking more than its fair share of traffic and that needs to be addressed.


adverse credit histories and where affordability is an important consideration.” While this does not infer conclusively that poor records would result in a claim against a broker being upheld, it highlights the danger facing brokers. “So long as the borrower has fully disclosed his or her financial budget, intentions regarding mortgage repayment and completed a full fact find then I believe it is disingenuous for a borrower to subsequently turn round to a lender or broker and demand financial compensation,” says Duffy. “Especially where either interest rates have moved against them or perhaps their employment position and disposable income has changed in a way which makes the mortgage payment unsustainable. “As with all of these kind of scenarios all


roads will lead back to the original record keeping carried out by the broker, the quality and depth of that and the extent to which it then reads across into a robust suitability letter.”


Dominik Lipnicki, director of broker Your Mortgage Decisions, agrees. “All good brokers will ensure that they explain why their choice is most suitable for the client and it is highly likely that it will be in black and white at some stage in the paperwork,” he says. “If the advice given was right and appropriate, not receiving a “reason why recommendation made”


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