Subprime brokers 'did not check' if borrowers able to repay
A PROBE by the Financial Regulator into how brokers sold subprime mortgages has found that large numbers of them did not properly check if borrowers could afford the mortgages they were taking on, the Irish Independent has learned.
Subprime lenders charge interest rates as high as 8pc with the result that many of those who took out these mortgages are now struggling to meet the repayments.
Most of the repossession cases that end up in the courts relate to mortgages issued by subprime lenders.
Some 43pc of all repossessions by court order are generated by subprime lenders, the Irish Banking Federation said last month.
Now it has emerged that a number of brokers arranging subprime mortgages never bothered to check if borrowers could afford the loans.
Subprime mortgages were taken out by people refused by a mainstream lender for a mortgage because they have a poor credit history or an irregular income.
The investigation found proper checks on consumers' incomes were not carried out by brokers.
In a letter send to all mortgage brokers, an official in the regulator's office, Sharon Donnery, wrote: "In a number of cases firms did not appear to be conducting sufficient research into the consumer's ability to repay and firms seemed to rely solely on the lender's criteria for assessing ability to repay and suitability for a mortgage."
The statutory consumer protection code demands that people can only be offered financial products if they can afford them and if the product is suitable for them. The letter, seen by Karl Deeter of Irish Mortgage Brokers, states: "During the review, a number of firms were found to be producing statements of suitability lacking detail and containing vague generic statements."
Subprime lenders have only been regulated since June 2008, but brokers arranging subprime loans have always been regulated.