Industry leaders are increasingly worried that moves by all the major lenders to crack down on mortgage fraud will unintentionally lock some firms out of the distribution market altogether.
Robert Sinclair, director of the Association of Mortgage Intermediaries, said there has been a perceptible shift in lender attitudes towards which distributors they work with in the past three months.
Sinclair said: “Last year the Financial Services Authority kicked lenders all around the room on mortgage fraud so now lenders are starting to take action on it.
“That’s what is changing the face of distribution as well as the Mortgage Market Review. They’re being told very clearly to get to know who they were doing business with.”
Since the start of the year networks and clubs have increasingly been asked to provide more detailed compliance information on member firms.
Some lenders are reportedly requiring security checks be done on network administration staff as well as intermediaries writing mortgage business to give them added peace of mind.
Openwork’s mortgage director Paul Shearman said he had been asked to vet people in the business “involved with management information data at lenders” including any temporary staff.
And Peter Brodnicki, chief executive of Mortgage Advice Bureau, said there has definitely been a shift towards distributors having to prove their business quality to lenders.
He said: “The issues are no different, they’ve always been there but they are being scrutinised more, acted upon and implemented.
“I do think some of the networks need to take out worrying about having to be the cheapest. They need to deliver the systems, controls and value to their brokers.”
David Copland, chief executive of Pink Homeloans, said: “At the end of the day the lenders aren’t obliged to deal with everyone. It is a commercial decision.
“With things going on in the marketplace like the FSA saying “know your broker” then the quickest way would be to go to your top 20 brokers and do a bit of due diligence on those people. It’s a commercial decision who they deal with.”
Copland added that he had been asked questions about Pink'srecruitment process and member monitoring process.
He said: "We were never asked about these sorts of things before."
Copland said DAs were likely to suffer more than ARs in networks.
"It’s a lot more difficult for the lenders to glean that information about DAs," he added. "That’s part in parcel about why we’re starting to see networks getting the better more exclusive products. At the moment the mortgage clubs are looking at those and asking themselves what they could do to satisfy what the lenders or the FSA. How are lenders going to find out about those 5000 or so DAs?"
Sinclair said the move by HSBC to restrict its legal panel to 43 firms from whole of market was a direct result of the FSA issuing guidance to lenders on knowing their third party partners better.
And he added: “They’ve therefore done a commercial deal that looks under a different place of mortgage fraud and gets them a lot more certainty about who they deal with.
“Similarly we’re going to see more of that type of activity in our market from a range of lenders to look seriously at things and ask, are we sure about this? If we sniff this, are we going to be happy about what we smell?”
Sinclair said lenders were unlikely to axe relationships with brokers as dramatically as HSBC axed its legal panel but he warned there would be a fallout for some firms.
He said: “Are they suddenly going to go from working with 12,000 brokers to 3,000 brokers, no they’re not.
“But are they going to look at it and say that actually in order to keep doing business with us, this is the kind of standard that people are going to have to deal with, then yes they are.
“If some brokers fall by the wayside because of that then are lenders going to cry? I don’t think they are.”
Sinclair said it is up to people who want to be good and responsible to work hard and prove they are competent.
And he added: “There are people who want to be good and demonstrate the value they add. People have got to be very transparent about what they do and why they do it.”
