The watchdog, which began regulating mortgage sales in October 2004, has written to the Chief Executives of all mortgage lenders and published a Factsheet for intermediaries, following a review of mortgage disclosure documents. The review found that although there were some good examples, the quality of documents varied and many needed improvement.
These documents, including the Initial Disclosure Document (IDD) and the Key Facts Illustration (KFI), are central to the success of the FSA’s mortgage regime and its aim to help retail customers achieve a fair deal. It is vital that firms provide consumers with clear, straightforward and comparable information to help them understand the services and products being offered, shop around more easily, and make informed decisions.
Clive Briault, FSA Managing Director Retail Markets, said:
"We acknowledge the effort firms have made to produce the new mortgage disclosure documents and in our review we have seen some good examples. However, we also found cases where documents were not in line with the format and content required by our rules or were too long and written in overly-legalistic language. Some Key Facts documents do not contain all the required information, and some include more information than the rules require, making them longer than necessary.
"We want to promote and reinforce a 'less is more' strategy to disclosure. Of the KFIs we reviewed around half were five pages or fewer. Based on these findings, we consider that good practice, for a standard mortgage, would be a KFI no longer than five pages. However, we accept there may be exceptions for more complicated mortgages."
A similar concern was noted on IDDs, where 80% of the firms sampled had 5 or more errors in connection with their IDDs. Although individually the errors were not major, taken together they can undermine the purpose of the documents.
The FSA will contact the firms sampled to provide individual feedback and will work closely with firms, trade associations and other stakeholders to communicate its detailed findings and to help achieve better quality documents for the future. And because disclosure is such an important part of the mortgage regime, the FSA will re-visit this area and take appropriate action in the future if there has not been an improvement.
Background
- The Dear CEO Letter to mortgage lenders and the Factsheet for intermediaries contain more information about the thematic review of mortgage disclosure documentation.
- The FSA took on statutory responsibility for mortgage regulation on 31 October 2004.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.
