Under the proposals announced this morning lenders will assume regulatory responsibility for checking borrowers’ affordability on all mortgage applications. This means brokers will not be held responsible by the FSA if a borrower is considered to be unable to afford the deal given to them by a lender in the future.
Consequently, lenders may be forced to redo affordability assessments on all applications even if a broker has already completed financial checks and income verification on the lender’s behalf.
If this morning’s proposals are confirmed CML director general Michael Coogan, says there will be pointless doubling up of work for lenders and brokers on affordability assessment.
He said: “There is a real risk that intermediaries will check affordability when assessing applications and lenders will then repeat the process when they receive the application. That will add time and cost to the process and not add value if the intermediary is already doing the work.
“It’s not clear how far lenders will want to delegate that work to brokers when they hold the regulatory risk. They may want to handle it themselves. In practical terms does that mean payslips and bank statements come from the borrower via an intermediary? Or does the lender ask the borrower for documentation directly to control the risk of fraud?
“In either case it adds an extra stage to administration: there’s no additional value but there is an additional cost. In other words, there’s pain but no gain.
“That would change the role of the intermediary into just an advice role and they would do less on the application process. Much depends on the FSA’s distribution paper on the subject which is due in November.
“But there’s a question mark about whether the FSA proposals will restructure the industry - again.”
The CML, the Association of Mortgage Intermediaries and the Intermediary Mortgage Lenders Association have been working on outlining the respective roles and responsibilities of lenders and brokers as part of their work together to present to the FSA ahead of the Mortgage Market Review in the autumn.
Still to come from the FSA is the discussion paper on distribution which is due in November and which may provide further clarity on this issue.
Coogan added: “The work that IMLA, AMI and the CML have been doing on this issue has been progressing well and is on track to emerge in the public domain in the next few weeks. That should be the right timing and will assess where we are today and assess the potential impact of the MMR proposals on the market.”
