Inquiry into `mis-selling' of mortgages

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The Independent Online
HOMEOWNERS MAY have been mis-sold mortgages totalling billions of pounds, on the scale of the pensions scams of the late 1980s, the Government suggested last night.

It is to investigate evidence compiled by an expert who was dismissed on Tuesday from a mortgage watchdog body after he alleged widespread "rip- offs" by the industry.

In Parliament yesterday, Margaret Beckett, Leader of the Commons, joined calls for far tougher regulation. Mrs Beckett, who campaigned on behalf of thousands of employees mis-sold private pensions, said "similar concern" was emerging about mortgages

The "whistleblower" was sacked by the mortgage sellers' trade organisation, which includes some of the country's biggest financial companies among its members.

It is expected be the first case to be brought under legislation introduced a week ago, which seeks to protect employees dismissed for disclosing information of public interest. Monty Burn, who worked for the Mortgage Code Register of Intermediaries, a self-regulatory organisation for brokers, alleges widespread abuse by firms tempted by lucrative commissions.

In a report, The Mortgage Bible, Mr Burn alleges that one in three householders had been mis-sold endowment mortgages with the promise of a big tax-free bonus at the end. He argues that it is the riskiest type of mortgage, but the most profitable for the salesman.

Mr Burn, who was chief compliance officer at the body and a former broker himself, says that householders are often persuaded to make a lump sum payment for mortgage insurance over five years costing an average of up to pounds 8.50 a month. For that, brokers receive a 65 per cent commission. However it should only cost them pounds 5 a month, which yields a payment of only 25 per cent to the intermediaries.

Mr Burns also accused mortgage lenders of failing to tell borrowers about the high cost of redeeming mortgages when they move house. He calculates that it costs on average pounds 3,000, simply to wind up one mortgage and take out another and points out that 1.5 million people move from house to another every year.

The whistleblower also took brokers to task for accepting payment from their private clients and also "procuration fees" from the lenders amounting to pounds 750 or 1 per cent of the loan. He said many firms saw the industry as a cow to be milked ahead of government regulation. "Some practices are a disgrace," he said.

Denis Pimblet, regional officer with the GMB general union, which is backing Mr Burns' case, said: "This mortgage body is supposed to protect the consumer. Yet it has sacked its compliance officer for doing just that. This is self- regulation at its worst. It is the equivalent of putting the fox in charge of the chicken shed."

The Mortgage Code Register of Intermediaries has promised to investigate the allegations, but says Mr Burns was dismissed for using internal material to produce his report.