The review found that, in general, lenders had strengthened systems and controls leading to increased detection rates for fraudulent applications; made improvements in the quality of information transferred to underwriting departments; and improved identification of staff training needs for self-certification business. Additionally, a number of lenders have had to take specific corrective action as a result of FSA supervisory work.
Mystery shopping of 41 intermediaries found there had been no systematic fraud regarding inflation of income to obtain a larger mortgage. However, three firms were prepared to discuss with clients how they could inflate their salary in this way and the FSA has followed this up with the firms concerned.
In supervisory visits the FSA found in 47 per cent of 249 cases reviewed the firm was unable to demonstrate it had appropriately assessed affordability. In 36 per cent of cases no reason was given or the reasoning was unclear as to why a self-certification mortgage had been recommended.
Clive Briault, FSA managing director of retail markets, said: “We welcome the improvements made by lenders in the area of self-certification. But in light of competitive pressures, tighter margins and rising arrears levels, we expect lenders to remain vigilant and to ensure their systems and controls are regularly reviewed.”
“The findings on sales and advice from brokers show significant weaknesses which is disappointing. Further work needs to be done not only on affordability and suitability checks but also on the record-keeping of the advice given. But it is encouraging we have found no evidence to suggest salary inflation is widespread or systematic within the broker industry,” he added.
A summary highlighting examples of good and poor practices which are designed to help intermediaries can be found on the FSA website at www.fsa.gov.uk.
