The Financial Services Authority (FSA) says some brokers knowingly allow homebuyers to give false information about how much they earn.
The regulator has now passed details of seven broking firms to its enforcement division for disciplinary action and is considering referring several others. Another 65 businesses will have to review their mortgage case loads and sort out problems in them. Others have stopped taking on new business until they rectify their failings.
Details of the investigation come comes amid fears that higher mortgage rates and a tougher approach by some mortgage lenders could see those who have stretched themselves begin to struggle with repayments.
Stephen Bland, the FSA's retail intermediary sector leader, says there are many mortgage brokers who do good work. But their efforts are being undermined "by the negligence or wilful non-compliance of others".
"There are still an unacceptable number of firms unwilling to change and they are damaging the rest of the industry," he adds.
The FSA's crackdown follows one of the most detailed investigations into mortgage brokers so far carried out by the watchdog. A total of 345 firms - mostly small mortgage intermediaries - were reviewed, including visits to 142 of them. The others were surveyed by telephone or by written questionnaire. In total, FSA review teams examined 1,194 client files.
The investigation uncovered 48 brokers suspected of breaking the rules on self-certification mortgages, where the borrower doesn't have to provide evidence of earnings, just a statement of how much he or she earns.
Stephen Bland says: "We found some firms willing to offer mortgages they know to be unaffordable and to accept self-cert business even where they had concerns that the financial information provided by the customer was implausible."
Other faults identified by the FSA inspection teams included:
- Brokers arranged mortgages which ran past the borrower's retirement age and had not considered how the loan would be repaid after that point.
- Brokers did not check the plausibility of a borrower's stated outgoings, or recommended an interest-only mortgage on the grounds of affordability - without putting a repayment plan in place.
- In one case, the broker allowed a customer to apply for an unaffordable mortgage - as long as they signed a disclaimer to say the broker had advised against it. This raises the possibility that the broker was simply covering himself while still earning money from the deal.
Louise Cuming, head of mortgages at moneysupermarket.com, says: "I really welcome this crackdown. For too long there has been a feeling that the regulator was all talk and no action.
"It is absolutely critical that the public see the FSA will take action, because if they do there will eb a lot more confidence in the rest of us who operate totally above-board."
Cuming adds that all calls to and from moneysupermarket's brokers are recorded, therefore easy to monitor, while a proportion of all files are monitored to make sure the mortgage advice team complies with all the rules.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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