Category: Compliance

Is it time for a review of the metrics surrounding arrears?

What I love about this industry is the constant changes and challenges we face, often we look back and find our businesses are stronger as a result.

Take the quality metric for example, lenders decide that they were no longer talking about sales volumes but had a whole new agenda about quality. Huge metrics were drawn up for networks with various combinations with which our appointed representative firms would be measured. Some were so complicated it was difficult to interpret them.

Over time they were tweaked and more information was shared with the networks, as a level of trust was built up for the first time with lenders and their fraud and risk departments.

As a result we all know and understand so much more. We are able to recognise information that needs to be challenged from day one. Many cases that may have potentially been a fraud case don’t get through the door and once you know what to look for, it is so much easier to protect your business and deal with the right clients.

However, one of those metrics has always puzzled me – how can networks and brokers improve on the number of cases that go into arrears?

Divorce, death, illness, redundancy and financial hard times are all reasons for falling behind with payments but they are not events that the broker can predict when arranging a mortgage. It is, however, a relevant discussion to have with the customer and therefore providing protection for them plays an important part in the advice process.

However, it may be time for the lender to accept that if they are unable to give the broker any information on cases that are in arrears, including client name, brokers can do no more to cover this aspect.

The lender holds the data and the lender makes the ultimate decision to lend. They currently have little interest as to whether there is a policy in place to protect the client’s income which could prevent arrears in some cases. Maybe it is time for lenders to not only review the metrics but look at addressing the issue of protecting for the future when arrears may not be as low as they are now.

Mortgage Intelligence Update: How can advisers protect themselves against fraud?

Head of Compliance Steve Adams reveals his highlights of one of our latest MI Online webinars. The event saw Paul Kane, NatWest Corporate Account Manager, explore not just the link between a rising BTL market and the potential for fraud, but what you as an adviser can do to protect yourself

Advisers love our MI Online series, delivering great ideas and useful insights into many areas of the industry. One recent webinar, hosted by NatWest Corporate Account Manager Paul Kane, explored the relationship between a rising BTL market and the potential for fraud. Paul also highlighted exactly what you as an adviser can do to protect yourself. In case you missed it, here are my key highlights from the session:

Potential business means potential fraud

Most of the recent industry debate has been focussed on the future of BTL after the 2016 stamp duty changes and the upcoming changes in tax relief. This is understandable, considering the potential impact and controversy on its benefits.

BTL is also the fastest growing sector, supported by low interest rates and population growth during a shortage of housing that has put increasing demand onto the sector. BTL applications have increased dramatically since 2011, but it is still predominately an amateur sector, with 63% of landlords owning only one property, despite what some media outlets suggest.

But it is exactly this increase in business levels and public focus that both distracts from potential fraud and attracts certain dangers, which is why ensuring that a strong fraud focus is maintained within the industry has never been more important. Potential business can often mean potential for fraudsters as well.

How does fraud tie in to the BTL sector?

It is important to know some key BTL fraud definitions beyond the broad meanings of Mortgage Fraud and Money Laundering. Mortgage Fraud is defined as “a crime in which the intent is to materially misrepresent of omit information on a mortgage application to obtain a (larger) loan than would have otherwise been obtained had the lender or borrower known the truth.” This can be split further into two categories: Fraud for property and Fraud for profit.

Differences in criteria means that BTL fraud is typically classed as Fraud for Property rather than Fraud for Profit, as it is quite normal for interest-only mortgages to be taken out on BTL. Attempting to get a mortgage on an interest-only basis may be a reason why people might be intending to misrepresent themselves and conceal their intentions.

This situation can attract fraud because interest-only is more common and affordability is not as strict on BTL, which may attract those wishing to not pay back capital on their mortgage. This can also attract organised criminals who are not interested in the property itself and simply want access to the lender’s funds.

There are also instances of Fraud for Profit, where professional, organised criminals engage in mortgage fraud simply to abscond with the mortgage proceeds and do not have a preference for a particular mortgage product. In any case, they do not have any intention of making repayments and will typically use false identities, sources of deposit correspondence and bank statements to support the application.

How can advisers protect themselves against fraud?

There are many ways in which advisers can protect themselves against potentially fraudulent activity. Undertaking due diligence is key to this, such as checking documentation and payslips from the applicant. Now that the days of poor quality photos and easily-identifiable obscurities have passed, advisers need to be even more vigilant to ensure they are able to clearly spot potential fraud. Knowing how license numbers are structured can be an example of this, as well as ensuring it matches with the other client details.

Checking the details on bank statements and knowing the expected format can also help confirm validity. There should always be a professional appearance to the statement, with no spelling errors, anomalies or suspect details, as well as showing the correct address as the expected residence.

Ask yourself: Do the credits match those on the payslip? Are they from the correct employer? Are they the right type of payments such as BACS etc? Does the activity on the statement match the current customer profile? Are they recent documents, and if not why can the applicant not provide a more up to date one?

What more can advisers do about fraud?

Working with lenders, networks and each other is a really important step in protecting yourself against fraud. Also, if you have had business introduced to you, ensure that you know as much as you can about them and have asked the right questions to protect yourself. Have you visited their premises? How long have they been in business and what is their reputation? Does anything appear suspicious? In other words, fact find your introducer in the way you would your clients.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence Insight: Key financial dates for you and your clients in 2016

In a mortgage industry that seems to change as much as the weather in the UK, we have compiled a short list of key financial dates worth noting for you and your client. From scheduled tax changes and the ending of housing schemes to annual speeches and financial events, these important dates will keep you and your clients ahead of the game in 2016.

16 March 2016: Budget Speech

One of the most important events in the industry calendar will be Chancellor George Osborne’s annual Budget speech. After a cautious pre-election budget in 2015, some experts are preparing themselves for more change as the government tackles the housing crisis head on.

Anticipated announcements are on pension taxation and changes to tax relief, possibly moving from a tiered system to a flat rate. But whether more changes are on the way remain to be seen.

21 March 2016: European Mortgage Credit Directive

One of the biggest, yet scarcely mentioned financial changes in 2016 will be the MCD, or European Mortgage Credit Directive. This will come into play in March, introducing an EU-wide framework of conduct rules for all mortgage firms.

Designed to further protect consumers and create a sole European market, our rules will be set by the UK’s Financial Conduct Authority (FCA). The biggest effect this is likely to have on the industry is on buy-to-let mortgages, foreign currency loans and the introduction of a European Standardised Information Sheet (ESIS).

1 April 2016: Stamp Duty BTL

Changes in Stamp Duty Land Tax (SDLT) come into effect on 1 April 2016. This will mean higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes.

Although designed to disincentivise the financial investment in UK property and increase supply for first-time buyers, some experts have questioned the tax increases and feel landlords are being unfairly targeted. Either way, the rush to complete applications has already started in order to avoid the increase in April.

25 November 2016: Autumn Statement

It may not get the same attention as the annual budget speech, but the government’s autumn statement has historically contained some surprising financial announcements, such as changes to stamp duty in 2014 and changes to tax rates last year.

December 2016: End of Help to Buy 2

December will see the end of the government’s Help to Buy: Mortgage Guarantee Scheme. Otherwise known as Help to Buy 2, it has helped many first-time buyers with only a small deposit onto the property ladder.

Unlike the Help to Buy: Equity Loan, which only covers new-build properties, Help to Buy 2 can be used for both new build and existing homes. The scheme is now being withdrawn as lenders bridge the gap, with many now offering mortgages on deposits of 5% without the assistance of government schemes.

TBC: A Base Rate Rise?

The possibility of a Bank of England Base Rate Rise has been the subject of financial speculation for several years now, ever since it was set to its lowest-ever level of 0.5% in 2009. Although many experts suggest that Mark Carney will announce a move on interest rates in late 2016, there are some that still say this will not happen until 2017.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence Update: Is your client ready for the Mortgage Credit Directive?

Stephen Adams, Head of Compliance at Mortgage Intelligence, explores some of the potential ways the Mortgage Credit Directive could impact your clients.

After the Mortgage Market Review (MMR) in 2014, few expected such a similar piece of legislation to be hot on its heels, let alone affecting the whole European region. But on 21st March 2016 the Mortgage Credit Directive (MCD) will come into effect, in an effort to further protect consumers and create a sole mortgage market in Europe.

Although there is some debate as to whether this further legislation will actually add additional benefits to consumers, it will impact both residential mortgage lending and lending for buy to let. The UK’s regulatory body, the Financial Conduct Authority, with implement the changes here, but what specific areas will be affected?

Buy to Let and Foreign Currency

More specifically consumer buy to let (CBTL), the MCD will cover the minority of buy to lets where the borrower has not taken out the mortgage for business or investment purposes, or as an Investment Property Loan (IPL). From March, certain consumers, or “accidental landlords”, that have had to take out a BTL as a solution to circumstances, such as an inherited home or Let to Buy transaction, will find they fall under the new regulation.

Foreign currency loans will now be subject to further regulation, in some cases restricting the loan size and requiring a warning around possible rate changes. The MCD defines a foreign currency loan as “a mortgage denominated in a currency other than that in which the consumer receives the income”, or if they hold the asset from which the credit is to be repaid”. Because of these changes, there are some lenders that are already withdrawing their lending on foreign currencies.

The Sales Process and the “ESIS“

The European Standardised Information Sheet (ESIS) has been one of the more contentious announcements as part of the MCD. Having to abandon our own Key Facts Illustration (KFI), the UK must now adhere to the new ESIS sheet, or in some cases a KFI Plus prior to application. Many lenders are already adjusting to the new rules, choosing whether to move to the ESIS immediately in March or temporarily to the KFI Plus.

Although the UK’s MMR in 2014 put us in good stead ahead of MCD, the changes are nevertheless conflicting with some of our own regulation that has been tailored towards the UK market. The general sales process, which in each country can vary markedly due to certain differences in mortgage systems and languages, will now be restricted to a standardised, continent-wide law that requires certain steps to be taken before a mortgage is completed.

Protecting the Consumer?

Some experts have criticised the MCD as potentially confusing for consumers, rather than protecting against financial detriment as was the goal of the changes. But either way the MCD is tightening further the rules around financial promotions to be clear and not misleading, which can only help further protect consumers.

The MCD also ensures that lenders are required to now issue binding offers to consumers as well as a seven day reflection period which will start on the issue of the binding mortgage offer. This is designed to deliver peace of mind and further security to consumers.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.