Self-certification mortgages have not enjoyed a good reputation in the property market in recent years. Several years ago evidence emerged that some applicants were exaggerating their incomes in order to achieve bigger loans. It was alleged that a minority of applicants may have also been lying about their incomes altogether and may have actually been unemployed.
Since then the Financial Services Authority, and several media companies, have conducted research into the self-cert market. While the FSA has given the market the green light on several occasions others have not. Self-certification mortgages have been labeled "liar loans" in the United States and while they haven't adopted the same nickname in the UK their reputation is similar.
In a recent Mortgage Expo in which mortgage brokers were able to communicate directly with the FSA in a question and answer session the brokers spoke their minds regarding this type of home loan product. The FSA was told in no uncertain terms that brokers believe mortgage fraud is rife with self-certs and fast tracked mortgage products. They asserted that lenders are to blame as they are primarily responsible for setting the terms and conditions in which the home loans are assessed and ultimately approved or declined.
Brokers seem to have taken the bulk of the blame in the US thanks to a few cowboys who actually did break the rules in order to make lots of money. However brokers in the UK are only able to manoeuvre as far as the lenders' rules allow them to. If the rules regarding self-certification mortgages are flawed then it is more likely to be the lenders' fault rather than the brokers who are essentially middlemen in the process.
Brokers were able to tell the FSA in the question and answer session that they have witnessed first hand situations in which they advise clients that they cannot help them get a home loan because they simply do not qualify. The brokers subsequently discover than another broker has helped them secure a mortgage which means the applicants most likely told the second broker a different story regarding their earnings. For example, they may have told the second broker they earn twice as much money as they told the first broker as they have become aware from the first broker that they require more income in order to secure a home loan. Because self-certification mortgages do not require proof of income the applicant is approved assuming their credit history is in tact.
The brokers believe that the lenders need to take more responsibility for their lending criteria and stop passing the blame on to everyone else. Brokers argue that denying responsibility for fraud with self-certification mortgages is similar to handing someone a loaded gun to rob a bank and then pretending it wasn't their fault the bank was robbed. Because of the lax lending criteria regarding self-cert products they have been blamed by some analysts as one of the main contributing factors for the credit crunch. Whatever the case, the FSA has now heard first hand from industry insiders that self-certification mortgages need a shake-up.
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