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Serious Mortgage Mis-selling causes FSA to step in

The Financial Services Authority has been cracking down on the mis-selling and poor advice that has been plaguing the mortgage market, especially in the dealing of sub prime offers.

The Financial Services Authority or FSA looked into the practices of 345 brokers and found some disturbing trends, which caused for serious action to be taken. Approximately 65 brokers are looking at expensive reviews and audits of their practices after it was discovered that these brokers were allowing borrowers with details that left serious questions to take out self-certification mortgages. Seventeen brokers are currently facing legal action another four brokers have been suspended and another six were referred directly to the FSA’s enforcement office.

This brings up a number of serious concerns in a mortgage market and real estate market that is already suffering because of economic conditions. There has already been a rise in sub prime borrowers to the extent that government organizations are attempting to alleviate the concerns by dropping rates.

This mis-selling however means that there may be less options and that criteria will be stricter when it comes to allowing sub prime and self-certification mortgages. Sub prime mortgages are for individuals unable to gain prime mortgages. The interest rates are usually significantly higher as these mortgages contain a higher risk. Self-certification mortgages are for the self-employed who may not have the ability to prove the month-to-month income necessary to qualify for a prime mortgage.

Some of the brokers who are currently facing reviews or legal action were allegedly charged with selling these self-certification loans to non self-employed individuals. In addition, many sub prime loans have been granted to individuals who do not have the means to pay for these costly loans. This has resulted in a severe financial stress for these borrowers and many now face repossession. Borrowing rates are also on the rise and criteria is being tightened making it even harder for individuals who do not mean standard criteria for a regular mortgage to obtain the financing that they require.

Self-certification and sub prime loans in and of themselves are not bad in fact; they allow people who would not qualify otherwise to have access to their own home. This has a variety of benefits and they help a variety of different types of people. When these types of loans however are mis-sold or mis-managed, it has an effect not just within that market but also within additional markets.

This year alone the effect has already been felt as individuals looking at self-certifications now have to produce a minimum of 10% of the value of the property they are looking to gain a loan on. This is up from 5% earlier in the year.

There were a number of firms that found it acceptable to offer mortgages despite the financial concerns. This sort of business practice is not only unfair to consumers but also to the industry as it can cause widespread and serious repercussions throughout the real estate market.

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