Tony Jones, packager Pink Home Loans’ managing director, has welcomed most of the Treasury’s recommendations on mortgage regulation but states there are areas, including a variety of definitions, which need to be clarified further.
Jones said: “We have requested that clear definitions be in place so that those packagers who offer advice to the consumer can be regulated. The four definitions given to packagers in the Treasury response require more clarification. In my opinion they do not clearly define who gives advice and this could very easily lead to problems in ensuring proper accountability and that regulation is adhered to. I trust that the FSA will rectify this point.
Jones went on to say that the exclusion of second charge lending, like equity release products was a mistake.
Jones said: “Pink is disappointed to see second charge loans excluded from regulation. People with poor credit histories often seek to mitigate debt problems by consolidation into loans secured on the equity in their homes.”
He said: “These people are almost always better served by either varying the terms of their existing mortgage or re-mortgaging, rather than taking out a second charge loan. We remain concerned that if the burden of regulation is higher on first charge than on second charge loans, there is a distinct possibility that some advisers may seek to avoid regulation by arranging second charge loans to the detriment of the consumer.”
Jones said he was surprised that Pink were one of only two companies to highlight this issue during the consultation.
Pink believes that keeping introducers of mortgage business outside of regulation is right and that the conditions set in place are prudent. The consumer will still be protected, as the appointed representative or authorised person will be duly regulated.
This allows intermediaries who place very little mortgage business to introduce to third parties who have the expertise to offer advice. Pink prides itself on its mortgage expertise and, should demand warrant it, Pink could offer this regulated facility to intermediaries. This scenario would also help brokers who perhaps wish to give mortgage advice in the future but are unable, for whatever reason, to pass CeMAP before the year-end deadline.
Philip Tebbatt, head of financial litigation at Clark-Willmott legal firm outlined his thoughts on the summary document, which has raised almost as many questions as it answered.
On the arranging of mortgages, Tebbatt said the Treasury has not really clarified the position of packagers.
He said: “The Treasury has identified mortgage clubs (defined as providing information services to intermediaries) and mortgage packaging companies (defined as providing services to lenders) which they indicate would not carry out the regulated activity of ‘arranging’. But they have identified broker packagers (defined as offering intermediaries a complete outsourcing service) and correspondent lenders (defined as providing front-end administration services for lenders) who might be caught. But only "might".
Unfortunately, the Treasury has concluded that no amendment is required to the legislation to clarify the position. The current legislation, of course, does not mention packagers at all!”
Tebbatt said there was also widespread concern in the responses to the consultation process about the position of estate agents and house builders who regularly made mortgage introductions and who looked likely to be caught in certain circumstances by the regulatory regime.
There was an anomaly, which meant that a housebuilder, for example, was not carrying out a regulated activity if he made an introduction to an appointed representative of a life company but was if he referred to one who was not independent.
Tebbatt further outlined that it has been decided that any introduction to a regulated firm, whether independent or not, should be exempted from regulation subject to some minor safeguards relating to the holding of client money and disclosure of a financial connection to the organisation to whom the introduction is made.
The definition of advice in the background legislation (which also related to investments) is not changed to reflect mortgage business. This is important as it allows for the concept of "execution only" business in respect of mortgages. Otherwise, regulation would have prevented customers exercising the choice to simply buy an off-the-shelf product.
The definition of "by way of a business" has also been harmonised with the definition applied to investment business to minimise the risk of advice centres, charities and other family arrangements being caught by the regulatory regime.
Importantly, the Treasury has agreed to make some amendments to the regulated activities order to answer some concerns that some of the activities under an administration agreements in the context of a securitisation may constitute "arranging".
