Industry figures have said that the fixed method used by sourcing systems to calculate the ERCs on lenders’ products could result in brokers receiving KFIs that contain incorrect information.
When a product is sent through to a sourcing system database, the system automatically works out the ERC on that deal using a universal method, even if certain products use a different method to work out the ERC.
When questioned on the issue sourcing system Trigold said that the majority of ERCs are suited to one type of calculation, but admitted that a minority of products would require a different method to be used.
Bill Safran, joint managing director of Trigold, said: “Most ERCs are no problem as they are calculated as a percentage of the balance of the loan. With interest-only deals the mortgage balance remains the same over time so the ERC can be worked out quite easily. Capital interest loans are more complex but the FSA has said we can use the initial balance to calculate the ERCs on this.”
But he added: “The only time it could cause a problem is when the ERC is based on interest rates. A tiny minority of lenders do it on an interest rate basis, and for these we will get the calculations from the lenders specifically.”
However, with some lenders stating that they will not be verifying the accuracy of their product details on sourcing systems, the danger still lies that inaccurate ERCs will be stated on these KFIs.
Matt Grayson, public relations manager at BM Solutions, said: “It’s no good that a ‘tiny minority’ may be inaccurate. How do you define a tiny minority? The sourcing systems know what the symptoms are, so they should be working towards finding a cure to guarantee accurate KFIs.”
Mortgage Brain declined to comment.
