THE MORTGAGE CLAIMS BUREAU AND YOU A GUIDE TO MANAGING MIS-SOLD MORTGAGE CLAIMS

To give you the confidence to: Handle and submit claims to TMCB Answer customer questions Have an understanding of why and how mortgage mis-selling occurs AIM

1.Background 2.Documentation 3.Q & A discussion 4.Practical examples AGENDA

INTRODUCTIONS THE MORTGAGE CLAIMS BUREAU AND YOU

BACKGROUND

A loan used to purchase a property The loan is “secured” against a property, so that if repayments are not made the lender can repossess and sell to get their money back Residential, commercial or Buy to Let Term: 5-35 years WHAT IS A MORTGAGE?

Mortgage mis-selling occurs when a sales representative from a mortgage broker or lender advises an inappropriate product to an individual, (the client), which results in that client suffering a financial loss. WHAT IS A MORTGAGE MIS-SELLING?

Most mortgages were sold correctly The complexity and possible variations of mortgage mis-selling PPI PROCESSING VS. MORTGAGE MIS-SELLING PROCESSING?

WHAT ARE THE PREREQUISITES OF A MORTGAGE MIS-SELLING CLAIM? To succeed, a claim must be based upon legal precedence or unequivocal breaches of MCOB regulations backed up by a proven financial loss.

WE HAVE MAPPED THESE PREREQUISITES INTO THREE QUESTIONS. IF YOUR CUSTOMER CAN ANSWER ‘YES’ TO JUST ONE OF THEM THERE MAY BE A CASE OF MORTGAGE MIS-SELLING.

THREE GOLDEN QUESTIONS

ARE YOU CURRENTLY THREE MONTHS OR MORE IN ARREARS WITH YOUR MORTGAGE?

HAVE YOU SWITCHED MORTGAGE, OR RE-MORTGAGED MORE THAN ONCE IN ANY FOUR YEAR PERIOD SINCE OCTOBER 2004?

DID YOU TAKE OUT A MORTGAGE FROM ANY OF THESE LENDERS BEFORE OCTOBER 2004? Amber Home Loans G-Mac Paragon Birmingham Midshires Igroup Pink Home Loans CHL Kensington Edeus Preferred Mortgages Rooftop The Mortgage Business (TMB) London Mortgage Company Mortgage Express SPML (Southern Pacific) First National Mortgage Trust The Mortgage Lender Future Mortgages Mortgage Works GE Money Oakwood Home Loans

UNLESS THE CUSTOMER ANSWERS ‘YES’ TO ONE OR MORE OF THESE QUESTIONS, A CLAIM, HOWEVER PASSIONATE, WILL ALMOST CERTAINLY FAIL.

BEING MIS-SOLD A MORTGAGE IS NOT THE FAULT OF THE CUSTOMER!

IT’S ABOUT MONEY, NOT ‘MISTAKES BY THE BROKER OR LENDER’

1. A loan used to purchase a property 2.The loan is “secured” against a property, so that if repayments are not made the lender can repossess and sell to get their money back 3. Residential, commercial or Buy to Let 4. Term: 5-35 years 5. The lender will register with Land Registry as an ‘interested party’ WHAT IS A MORTGAGE?

TYPES OF MORTGAGES REPAYMENT INTEREST ONLY

1.Oct 1986 De-regulation 2.Foreign banks enter UK market but sell through brokers and high street banks start to set up sub-prime brands – anything goes approach till Nov The Financial Services Authority (FSA) took over mortgage regulation on 31/10/ The Mortgage Conduct Of Business (MCOBs) took over from The Mortgage Code at the same time. 5.2 nd and 3 rd charges and Commercial Mortgages i.e. Secured Loans and Buy to Lets are not regulated by the FSA KEY DATES

Sub-prime mortgages are those provided by lenders who, in general, do not have a high-street presence A subprime mortgage is often the financing of choice for borrowers who do not fit the conventional guidelines of mortgage financing SUB PRIME MORTGAGES

Amber Home Loans G-Mac Paragon Birmingham Midshires Igroup Pink Home Loans Northern Rock (NRAM) Kensington Preferred Mortgages London Mortgage Company Rooftop SUB PRIME MORTGAGES Edeus Mortgage Express SPML (Southern Pacific) First National Mortgage Trust The Mortgage Lender Future Mortgages Mortgage Works The Mortgage Business (TMB) GE Money

BROKERS ACTIVELY SOLD SUB-PRIME INTEREST ONLY MORTGAGES BECAUSE THE COMMISSIONS WERE GREATER THAN THEIR HIGH STREET COUNTERPARTS AND WERE USUALLY QUICKER TO COMPLETE

MORTGAGE MIS-SELLING THE PAST, THE PRESENT, THE FUTURE

THE USUAL SUSPECTS Examples of mis-sold mortgage scenarios that can be used to support a claim BUT NOT BE THE BASIS OF THE CLAIM

1.Mortgaged into retirement 2.Debt consolidation 3.Top-up mortgage loans 4.Interest only mortgages without a repayment vehicle 5.Self Cert 6.Right to Buy schemes THE USUAL SUSPECTS

1. MORTGAGED INTO RETIREMENT The term of your mortgage will run past your retirement age and the sales person will not have ensured that a suitable method of mortgage repayment such as a pension is in place Alternatively they may have asked if you have a pension but not confirmed that the income it provides will cover the total mortgage repayment

2. DEBT CONSOLIDATION On the surface, debt consolidation looks like a positive thing. If you are paying a higher rate of interest on a car loan or credit card than your mortgage then why not consolidate? The problem arises when the Finance Agreement that’s being consolidated is set up over a greater term than it was originally sold on. If you have a 5 year car loan that’s consolidated onto a 25 year mortgage then you are paying interest on that finance for 20 years longer than you would have done originally This puts you in a worse position than if you had a higher interest rate initially and is classed as bad advice

3. TOP-UP LOANS 125% loan to equity Top-up loan second mortgage so unregulated and not covered by FSA Lenders used extra borrowing to load charges and conditions

4. INTEREST ONLY MORTGAGES WITHOUT A REPAYMENT VEHICLE The sales person should ensure that a suitable repayment vehicle e.g. an endowment, pension or ISA is in place to pay off the mortgage capital at the end of the mortgage term Some sales people recommended interest only mortgages with no repayment vehicles so monthly repayments remain low It isn’t acceptable to state you can sell your home to repay the capital as house prices may stagnate as in the current housing market A huge time-bomb. 1.5 million ‘Interest Only’ mortgages, sold without any form of savings policy in place, will come to the end of their terms in the next ten years!

5. SELF CERTIFICATION Self cert mortgages are offered to a client when they cannot show proof of their regular monthly income, i.e. when they are self employed The interest rate charged is usually higher due to the risks involved. Often if they could have proved their income and therefore could have gone with a cheaper lender

6. RIGHT TO BUY SCHEMES Right to buy schemes were used when a client wanted to purchase the council house they were residing in. Some mortgage brokers upon seeing the discounted selling prices would add on excessive fees for setting up the mortgage. This would then leave a huge and unnecessary bill to pay.

BROKERS Some very good, some very bad Created the market place Were paid very high commissions Didn’t always act in the customer’s best interest Most have gone out of business

WHY WERE SUB-PRIME MORTGAGES SOLD IN SUCH LARGE NUMBERS? Credibility of brokers was established by word of mouth They were the favoured product by brokers The cost – they were perceived as cheaper They were quicker to complete than standard High Street Mortagages