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Written on 19 September 2008 by
GE Money’s 2 mortgage brands, First National and igroup, sent us emails yesterday evening saying that they were going to put two fingers up at the FSA’s mandatory Treating Customers Fairly (TCF) policy. They didn’t of course put it that way but the content of these emails, which covered both their first charge and second charge lending, was a blatant abuse of TCF. If the FSA lets GE Money get away with this abuse it will encourage other irresponsible lenders (although I must stress that the vast majority are responsible) to think they can also flout the rules and the whole TCF concept could fall apart.
This is the relevant part of the email we received from both lenders (they were basically identical):
The volatility in global and UK financial markets has resulted in a dramatic increase in the cost of funds, which is the key component in how we price our products to your customers.
As it is likely that these conditions will persist for the immediate future, we have had to review all of our rates and fees to ensure they reflect present market conditions.
Rate and Fee Changes Summary
Rates have increased by 0.80% on all products up to 80% LTV and up to 1.60% on all products above 80% LTV.
Completion fee now £2,995 for applications at 80% LTV and below and remains at £1,695 for applications above 80% LTV.
Due to the magnitude of the change in the cost of funds, the following rules will apply to managing pipeline business:
With immediate effect all new cases must be submitted on 3808 rates. All pending applications i.e. not yet submitted to us must be updated to reflect this change. Any cases received in the post tomorrow morning will be sent back.
All cases that have been submitted to us but not yet offered can now only be processed on 3808 terms. You will therefore need to re-dip all such cases through IDOL to ensure they still meet criteria/affordability requirements, if you want them to proceed. The new DIP must be received in our offices by 26th September. If we do not receive it by then, we will return the application papers to you.
All cases submitted on the 2908 range or previous will be honoured on present terms and will only be valid until Friday 3rd October 2008. This offer is subject to the customer completing and drawing down funds by Friday 3rd October 2008. If any case on pre 3808 terms needs to be subsequently reoffered for any reason, the case will be reoffered on 3808 terms.
If the offer period expires but customers still wish to proceed with the loan, the reoffer will be subject to criteria, rates and fees prevailing at the time. We will send a covering letter to all customers who have offers from us shortly informing them of this change to the offer terms and urging them to contact their solicitor.
There will be no exception to these rules
We apologise for the short timelines in announcing these changes and the disruption this may cause to your business. We hope you appreciate that exceptional market conditions make these changes necessary.
With reference to the last paragraph no I don’t appreciate why GE Money had to make these changes, and the second paragraph stating that they “had” to review rates is factually inaccurate. They chose to review rates, they didn’t have to review them. No other lender has even yet increased rates, although I expect many to do so next week, yet alone acted in such an outrageous and cavalier manner.
GE Money is a Balance Sheet lender and what I suspect has happened is that they took a view and didn’t fund the mortgages they had already offered or the cases they were processing on the basis that rates would continue last week’s trend and keep falling. That’s fair enough but it is a gamble and if the gamble goes wrong any decent lender would be man enough to take it on the chin. Hopefully there will be other occasions when their treasury dept gets it right.
To penalise borrowers by arbitrarily changing the deadline for completion on cases already offered, on the basis of which purchase clients may have exchanged contracts and may not be confident they can comfortably afford the new terms, is totalling unacceptable. It potentially puts brokers in the very difficult position of either having to advise the client to proceed with higher monthly payments they are not happy the client can afford or advising the client to write off the deposit paid and other costs incurred and risk being sued by the vendor for breach of contract.
I wonder which of the above two alternative pieces of advice the FSA would advise brokers to give their client!
Refusing to honour terms on cases which First National or igroup have already received but not yet offered submitted is also totally unacceptable, especially as they are currently exceptionally slow and picky in underwriting cases
This reminds me why, on the basis of treating our customers fairly before this became an FSA mantra, we previously refused to deal with igroup under its various previous names including the notorious City Mortgage Corporation, whose practices were solely responsible for the formation of The National Association of Mortgage Victims.
To cap it all we have just received another email from First National saying: apologise it has just come to light that some of the discount reversionary rates are incorrect on the guide I send (sic) over last night” The words “piss up” and “brewery” come to mind!
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