Wednesday, March 10th, 2010 at
3:20 am
Bad credit mortgage applications are subject to strict rules that are enforced by the mortgage industry regulator – the Financial Services Authority. The regulator regularly investigates whether the bad credit mortgage rules are being adhered to by mortgage brokers by way of test samples and mystery customers.
Test samples often show irregularities by mortgage brokers in relation to bad credit mortgage applications meaning that not all brokers are following the rules correctly. The regulations have been designed to stamp out mis-selling with the intention of protecting the pubic from unscrupulous mortgage brokers.
One of the most common ways in which mortgage advisors have been helping their clients to secure loans is by advising them to exaggerate their income. This practice involves inflating your income on a mortgage application to make it look like you earn more money than you actually do. The purpose of this activity is to secure a larger home loan than you otherwise would and therefore buy a larger or more expensive property.
One of the main reasons for a mortgage broker choosing to engage in such an activity is to win business from people who would otherwise not be able to obtain a bad credit mortgage. A broker who helps clients to fudge their numbers will quickly earn a reputation and will receive recommendations from existing clients. Such a practice is not only dangerous because the borrower may be securing a loan that they cannot actually afford, it is also fraudulent. This can earn both the mortgage broker and their client time in prison.
Another reason is that the procuration fees paid to brokers by lenders and packagers can be a lot higher for bad credit mortgage products than standard home loans. Brokers who are out to make a quick buck will therefore target borrowers who don’t fulfill the lenders’ criteria for clean credit products and do anything possible to ensure that the application is successful.
Mortgage brokers are now required to supply their bad credit mortgage customers with an Initial Disclosure Document (IDD) and a Key Facts Illustration (KFI). These documents detail the services the mortgage broker provides and also gives personalised information about costs and risks of products. The documents form part of the Financial Services Authority’s initiative to improve customer understanding of bad credit mortgage products.
Despite the increased regulation, some mortgage brokers still engage in fraudulent activities. However, the public should be aware that this type of broker is a minority within the mortgage industry as a whole. Examples of dishonest brokers have been emerging in the press quite regularly thanks to thorough investigations by the Financial Services Authority.
Some brokers have even been charged with falsifying their incomes on their own mortgage applications. This is usually done with buy-to-let mortgages so the broker can buy more investment property than they otherwise would. Advisors who are caught out by the FSA are usually banned from conducting mortgage business in the UK for life and their clients may also face criminal charges if enough evidence is available for the police to prosecute.
By: michael sterios
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Monday, March 1st, 2010 at
3:06 pm
The mortgage business is an ever changing and it is an industry that has its own complexities. It is very much important that you understand how the mortgage industry works and how is the profit generated by the lenders. An analysis of this information will help you to have an insight knowledge about the techniques with which the loans can be appreciated and what is the reason behind the question as to why some lender offer certain loans and not the other. This article will help you to have insight knowledge about the different lending institutions that operate in the mortgage market.
Private lenders Vs institutional lenders: The foremost broad distinction arises between the private lenders and the institutional lenders. The lenders in the institutional lender category include commercial banks, savings and loans, credit unions, mortgage banking companies, pension funds, and insurance companies. These lenders generally determine the loan giving capacity of a person based on the income and credit of the borrower; these institutions have to adhere to the standard lending norms. On the other hand the private lenders do not have the guaranteed depositors and they are not regulated by the norms of the federal government.
Primary Vs the secondary market: First of all these markets should not be confused with the first and second mortgages. The primary mortgage lenders deal directly with the general public and they themselves originate the loans from their resources and then lend the money to the borrower directly. The primary market is often referred as the retail side of the business. The profit is generated by the lenders from the loan processing fee and not with the interest amount of the loan. The primary mortgage market generally lends the money to the consumers and then they sell the mortgage notes to the investors in the secondary market so as to replenish their cash reserves.
Some of the largest buyers in the secondary market are the Federal National Mortgage Association or FNMA or Fannie Mae, the Government National Mortgage Association or GNMA or Ginnie Mae and the Federal Home Loan Mortgage Corporation or FHLMC or Freddie Mac. Private financial institutions such as banks, life insurance companies, private investors, and the other thrift associations also buy notes.
Mortgage brokers Vs Mortgage bankers: It is a common assumption that the mortgage companies are the banks that lend their own money, it is important to note the fact that any company that you deal is either a mortgage banker or a mortgage broker. The mortgage banker is the direct lender who owns money and he often sells it to the secondary market. They are referred as direct lenders and they are the ones who sometimes even retain the servicing rights. On the other hand a mortgage broker is an intermediary who is responsible for loan shopping, he is the one who is responsible for the loan analysis, and he acts as a connecting link for the lender and the borrower. Mortgage brokers do not deal directly with the public and they are also referred as the wholesale lenders.
By: shijina
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Sunday, February 28th, 2010 at
12:28 pm
HSBC subsidiary First Direct has withdrawn the offer of mortgages to non-customers, further fuelling the crisis in the lending industry. Recently the bank has been receiving a deluge of applications and simply does not have the staff and resources to efficiently process the information.
Chris Pilling, First Direct’s chief executive, said: ‘We’ve seen unprecedented demand for our mortgages since January thanks to our highly competitive pricing and the decision of other lenders to raise rates. As a result, we are currently seeing applications running at five times our normal volumes. Rather than increase interest rates dramatically to discourage new applications, we’ve decided to withdraw temporarily from offering mortgages to non-customers until we clear the backlog.’
First Direct is the first major home loan provider to take this step and there are fears that many others will now follow this precedent. Whilst the bank is not in the same state of financial meltdown as Northern Rock – it is still offering mortgages to existing customers – First Direct have grossly underestimated the amount of business their attractive fixed rate deals would bring in.
Their decision to shut up shop to new lenders will put a further strain on the industry as a whole. Building societies Bath and Earl Shilton recently withdrew mortgage offers to non-customers and Nationwide have put up rates to try and discourage new borrowers.
Meanwhile a study carried out by the MoneyFacts website revealed that 90 mortgage products per day have been withdrawn in the past week, leading to an eight percent decrease in the available offers to borrowers. This constitutes a huge setback for the mortgage industry, which has left experienced commentators stunned. Rob Clifford, the chief executive of the brokers Mortgage Force, said: ‘This is unprecedented. We’ve never seen this number of lenders pulling a whole tranche of deals or completely closing for new business. And I think we’ll see more lenders do the same.’
Even affluent young professionals will be hit by these worrying developments with the announcements from Scottish Widows and Standard Life that they have amended their 100% mortgage deals, which required no deposit. The deals, available to barristers, doctors, accountants and other highly paid professionals, were very popular as they provided flexibility due to individual assessment and the ability to borrow a greater amount than a yearly salary on the understanding that that salary would increase.
The deals now require a five percent deposit, whilst other 100% loans from the likes of Abbey are having their interest rates hiked up to reflect the growing climate of the industry. A spokeswoman for Scottish Widows said: ‘We are looking at the whole of the market place and we not saying that we don’t trust our customers. That is not why we have made the change.’ But Melanie Bien, of mortgage brokers Savills Private Finance, commented: ‘Even professionals can’t be trusted with 100 per cent LTV any more.’
By: Mark Skinner
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