DB Mortgages Slammed for Lax Lending Practices

Jack Humphrey, Regulatory journalist
February 22, 2011 /

The Financial Services Authority (FSA) has ordered DB Mortgages to pay £840,000 for failing to assess its mortgages in way that borrowers can afford them and for unfairly treating customers in arrears.

The FSA has proposed in July 2010 to impose affordability tests for all mortgages and oblige lenders to assess a consumer’s ability to pay. The proposals aimed at ensuring “all lenders get back to the basics of responsible lending and that problems are prevented before they can develop or get out of control.”

The proposals were part of the FSA’s review into the UK mortgage market, taking into account its analysis of past lending decisions and the causes of arrears and repossessions since 2005.

A review published by the FSA in June 2009 found that specialist lending firms have been weak in handling mortgage arrears and repossessions.

In a Final Notice sent to DB Mortgages, the FSA claimed that the Deutsche Bank Group subsidiary maintained an irresponsible lending practices and failed to ensure that borrowers could afford the mortgages whose term extended up to their retirement period.

Furthermore, the FSA accused DB Mortgages of failing to consider whether cheaper mortgages were available for borrowers “ seeking self-certified mortgages” and of failing to “ensure that customers had thought about where they would live at the end of the term if they needed to sell their house to pay off an interest-only mortgage.”

The FSA alleged that DB Mortgages unfairly and repeatedly charged its borrowers, the amounts having gone beyond the cost of administering an account in arrears, all without informing them of their chance to choose from available options.

Margaret Cole, the FSA’s managing director of enforcement and financial crime, said the penalty was the first that FSA has handed out in an “enforcement action against a firm for irresponsible mortgage lending.”

The FSA further seeks £1.5 million from DB Mortgages to compensate the losses of its borrowers.

In a consumer alert to borrowers, the FSA said DB Mortgages has since improved its arrears-handling procedures and cooperated with the regulator in its investigation.

DB Mortgages comes fourth to GMAC-RFC, Kensington Mortgages and Redstone Mortgages Limited, which have been previously sent with Final Notices over similar offenses on mortgage arrears handling.


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