A phrase often banded around
The background is this - In the market place you have your high street lenders and you have your specialist lenders. The specialist lenders tend to belong to the high street lenders (Birmingham Midshires is a sub of Bank of Scotland)
The specialist lenders will offer Self certification (self cert) mortgages. These mortgages have higher arrangement fees and rates then your high street lenders. With these mortgages the borrower fills out their income on the application form and confirms that this is correct. Ideal for self employed or employed with variable earnings like commission which most lenders will not include all of.
Self cert is wide open to abuse as the lender does not check the income. Mortgage brokers can encourage the borrower to lie about their income to obtain a higher mortgage than would normally be allowed.
Shocked? You should not be - the BBC discovered this 5 years ago.
But the high street lenders do not offer self cert mortgages so how can they be involved?
Let's take our good friend Northern Rock again. When asked in a treasury select committee if Northern Rock offered sub prime mortgages Adam Applecart said no. Technically he was correct, Northern Rock brokered sub prime deals to SPML.
But Northern Rock did offer mortgages on which they did not check incomes, could this classed as sub prime?
Most lenders have a process where loans up to 85% loan to value are fast tracked. This means that the income is not checked. Technically it is not self cert, but fast track. A prime mortgage where the income is not checked.
Northern Rock even GUARANTEED not to check the incomes in cases up to 85% LTV.
Mortgage brokers even have a trading platform on which they can see if a loan will be fast track before even submitting an application. Leaving fast track wide open to abuse.
So these loans are going to be off loaded on to the treasury (that's the tax payer to you and me).
Is this a can of worms that the regulator (yes the industry does have a regulator!) the FSA want to open?
So who to blame (we like to blame don't we) - well surely the blame must sit with government and Gordon Brown. They sat and watched millions get priced out of the housing market all the while claiming some sort of success. Of course the feeling of increased wealth that rising house prices bring helped Gordon Brown maintain his illusion of a booming economy.
Thanks go to ERIC for being the LIAR LOANS standard bearer