Broker closed for sub-prime loans

The Financial Services Authority (FSA) took the action against the three small firms after investigating the sale of sub-prime mortgages earlier this year.

Homebuyer Securities was closed down, while The Loan Company and Next Generation Mortgages were fined.

The FSA said the firms had put their customers' interests at risk through inadequate sales and advice procedures.

"Firms who do not comply with FSA standards taint the entire mortgage industry which is totally unacceptable"
Financial Services Authority

Sub-prime mortgages are those sold to people with poor credit histories or who do not have steady jobs and who are supposed to show they have the income needed to make the repayments.

Margaret Cole of the FSA said: "Firms who do not comply with FSA standards taint the entire mortgage industry which is totally unacceptable."

"Any firms who place their customers at risk of receiving unsuitable advice through inadequate business processes can expect strong action from the FSA," she warned.

Investigation

Homebuyer Securities, from Redditch in Worcestershire, was closed down altogether because it used unqualified advisers.

Its director has agreed never to work as a mortgage broker again.

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The Loan Company, based in Sandbach in Cheshire, was fined £31,500 for giving inconsistent information to customers and for not doing enough to find out if they could really afford the mortgage they were taking out.

Next Generation Mortgages in Cardiff was fined £10,500 because it had failed to explain the risks of its mortgage deals and for not doing enough to asses its customers properly.

All three firms were caught out after the FSA spent more than a year investigating the way that sub-prime mortgages are sold.

Its report, published in July, had found that some borrowers had been offered mortgages by brokers and lenders that were not suitable.

For instance the FSA said it had found examples of people being offered home loans they might not be able to afford.

All three firms are now going back though their books to see if any customers have actually suffered any financial loss.

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