No sign of widespread self-cert abuse, says FSA
Mortgage lenders have been told in a letter from the FSA there is little evidence of abuse of self-certification mortgage applicants as firms have good controls to prevent against fraud.
A Dear CEO letterdated 4th February and shown yesterday on the FSA website says there is no evidence of widespread mortgage application fraud as its review of lending controls revealed only 8% of all new mortgage lending originates through self-certification lending.
Moreover, there is no evidence to suggest there is a significantly higher rate of self-certification lending arrears, says the letter written by Philip Robinson, director and financial crime sector leader, as "lenders generally have adequate controls in place to protect themselves from becoming conduits for mortgage application fraud".
FSA findings are a vindication of mortgage companies’ controls to protect against credit and fraud risk.
The FSA's lending controls review was prompted a BBC programme last November prompted suggestions there might be a wider problem of application abuse among mortgage advisers who advised self-cert mortgage holders to lie about their maximum income allowance in order to obtain larger mortgages.
There does appear to be a higher usage of non-verified prime lending "fast track" mortgages than initially thought – allowing mortgage holders to take a self-cert policy but where the mortgage provider chooses not to seek full income verification – however the FSA does not have any concerns about these types of products as they require a higher level of recognised credit and security margin.
"Our review did highlight growth in non-verified prime lending," says Robinson.
"As would be expected for a product aimed at better quality credits, the arrears data suggested that such lending was currently performing better than mainstream status lending," he adds.
A series of additional good practice guidelines have been set out by the FSA, says Robinson, which might counter any remaining dangers of consumer abuse in their use of self-certification mortgages.
That said, the FSA points out it also intends to remind consumers, as potential mortgage applicants, of their own responsibility to report income honestly.
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