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 brokers have been helping their bad credit mortgage clients to secure loans is by advising them to exaggerate their income.
One of the main reasons for engaging in such an activity is to win business from people who would otherwise not be able to obtain a bad credit mortgage. A mortgage 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.
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.
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Bad Credit Mortgage information
