The FSA has concluded that lenders "generally have adequate controls" to protect themselves from fraudulent applications for 'self-cert' mortgages.
In a letter to chief executives of lending institutions, the FSA said that its survey of major lenders showed that "firms, in general, operate a number of controls in addition to those for full status lending in order to mitigate the increased credit and fraud risk." The survey found that data did not show a significantly higher rate of arrears for self-cert mortgages.
The FSA's letter noted that lenders use a variety of measures other than income verification to uphold the quality of self-cert lending, which represents six per cent of mortgage balances and eight per cent of new lending. Some of those measures, including "stress testing" of loans against higher interest rates, fraud detection systems, plausibility checks on claimed income levels, and disciplinary action against mortgage intermediaries involved in fraudulent mortgage applications, are outlined in an article published today in the CML's newsletter (copy attached).
The FSA's review also looked at 'fast track' lending - where the lender chooses not to seek full income verification but retains the right to do so - and concludes that arrears data suggests "that such lending was currently performing better than mainstream status lending."
Commenting on the FSA's finding, the CML's director general Michael Coogan said:
"It is reassuring that the regulator's review does not find any evidence of widespread abuse of lending practices. However, we would endorse the FSA's view that each firm should continue to evaluate the effectiveness of their controls in relation to self-cert and fast track lending.
"We also echo the FSA's warning to customers that they have a responsibility to report their income honestly when making a mortgage application - making a false statement would be fraudulent. Finally, we agree with the advice that customers should alert the authorities - the Mortgage Code Compliance Board or the FSA - if they are encouraged by their adviser to lie when applying for a mortgage."
