OFT may scrap Salomon arm's permit

Click to follow
The Independent Online
NIC CICUTTI

The Mortgage Corporation, the centralised lending arm of Salomon Brothers, one of the world's richest banks, faces the loss of its money-lending permit over allegations that it has harassed borrowers who fell behind on their home loans by just a few hundred pounds.

The Office of Fair Trading said yesterday that it was "minded to revoke" the company's consumer credit licence. The company has 21 days to make a submission, verbal or written, as to why this should not happen.

The OFT's unprecedented action against a lender of this size will be a big embarrassment to its US parent. It follows repeated allegations of harassment against Salomon's Surrey-based subsidiary.

Separately, Surrey trading standards officials are prosecuting the Mortgage Corporation on five specimen charges of harassment, which include allegations of threatening late-night phone calls to borrowers.

It is believed the investigation and subsequent charges follow complaints from more than 300 homeowners countrywide who have borrowed money from the Mortgage Corporation.

Sharon Foster, a Surrey trading standards official involved in the matter, said she could not comment on the case, due to be heard before Guildford magistrates later this month.

TMC was one of a large number of centralised mortgage lenders set up during the 1980s housing boom. The company promoted itself as an offshoot of its prestigious US parent. The film critic Barry Norman was used in a pounds 2m press and television campaign, extolling the virtues of a TMC mortgage.

At first, it was highly successful. Tens of thousands of borrowers disillusioned with the more conservative lending policies of many building societies moved to TMC's new, seemingly low-interest, mortgage products. But within a year of being formed, TMC, along with other lenders, was hit by the gradual collapse of the housing market, together with mounting interest rates. Initial profits turned into losses of pounds 4.5m in 1990, pounds 16m in 1991 and pounds 32m in 1992. The company now has 40,000 borrowers, a number steadily declining as desperate homeowners hand in their keys or move to new mortgages as soon as any penalties allow.

TMC rapidly acquired a reputation throughout the industry for being repeatedly among the last to lower its interest rates on loans. Its present standard variable rate of 8.85 per cent is the highest among mortgage lenders. Last year TMC gained further notoriety for repeatedly threatening to repossess properties whose owners were no more than a few hundred pounds in arrears.

The company has even attracted the concern of the Department of Social Security for being in violation of a code of conduct drawn up by the Council of Mortgage Lenders.

The code states that if a borrower becomes unemployed and benefits are paid by the DSS, the lender will not repossess the property because of arrears during the qualifying period in which mortgage interest is not paid.

TMC, which belongs to the mortgage lenders' body, said it did not feel itself bound by such restrictions. Some borrowers owing less than pounds 250 have been threatened with eviction.

The company yesterday refused to answer questions on the OFT's decision. A Salomon Brothers statement said: "The Mortgage Corporation has always conducted its business in an entirely proper way. We will always co-operate fully to the best of our ability with all regulatory bodies. We are confident that we will be able to satisfy the OFT in every respect."

Comments