Lenders may be forced to limit the number of brokers they do business with in an effort to mitigate risk if the FSA proposals to make lenders responsible for affordability assessments becomes regulation.
Yesterday the Financial Services Authority said in its responsible lending proposals that all mortgages should be assessed on affordability, and that the regulatory responsibility for ensuring this would lie with the lender if the changes go through in the Autumn Mortgage Market Review.
But Robert Sinclair, director of the Association of Mortgage Intermediaries (AMI), says the fallout from this designation of regulatory responsibility to lenders could impact on distribution via intermediaries as lenders will be reluctant to delegate affordability assessment to brokers they do not trust.
This may have the unintended consequence of putting smaller independent brokers at a severe disadvantage when trying to get business through lenders, he added.
“The risk is that lenders will restrict the number of distribution partners they work with in order to limit risk and rather than delegate responsibility to brokers they don’t know,” Sinclair told Mortgage Introducer.
“AMI will be going back to the FSA outlining these potential impacts. Along with the Council of Mortgage Lenders we will then be trying to find an alternative route to find the results that the FSA is looking for in this respect.
“We’ve got four months to work out what they’re really trying to achieve with this move, and I would imagine we’ll take a large part of that time to get to the right solution that works best for the industry.”
Michael Coogan, director general of the Council of Mortgage Lenders, said that if the regulation comes into play later this year, there will be an additional and pointless cost for the industry and ultimately the consumer, because affordability assessments will have to be undertaken twice. Once by the broker to enable them offer the correct advice, and then again by the lender to verify income information.
He said: “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.”