Mortgage Indemnity Insurance or Higher Lending Fees

[gwenlillian]

Hi, I have been arguing with my lenders for several years about these fees/charges (as above). The first lender called it a Higher Lending Fee which would apply if the LTV was over 90%, but, sold the 'product' on within months. The second lender called it a Mortgage Indemnity Fee as does my third lender, which is the current mortgage company servicing this same mortgage.
The fee of £3,100 was added to the mortgage but, I have researched the rates issued to brokers at the time by GMAC and they clearly state that the fee is only applicable if the LTV is over 90%. I raised this question with the FOS also but they didn't do anything.
Looking at this fee which is alleged to be for indemnity insurance for the lender only, I am trying to determine if this is a one off lump sum, and if it is, why then would the alleged risk be simultaneously worked into the interest rate being applied, making it higher and, simultaneously attracting interest over the term of the mortgage, so the £3,100 turns into much much more. It seems to me that this is having your cake and eat it. ?? The providers of mortgage indemnity products have to issue a certificate to the lender for pooled mortgages and I have SAR'd the company for this info, to see the true costs but they refuse to comply on the grounds that it is nothing to do with me as I am not a beneficiary of the insurance. Any ideas? thanks

[PlanB]

Re: Mortgage Indemnity Insurance or Higher Lending Fees

I took this issue to the FOS and lost. Their reason for not upholding the complaint was that it was the broker's duty to spell out to me that I would not benefit from the HLC or MIG etc. They told me to make a claim of missselling against the broker. GMAC mortgages were always sold through an intermediary so this may be the case with you. If the HLC or MIG was stated clearly in the KFI then you will have little chance of success. I have not pursued my claim.

Are you saying the LTV on your mortgage was less than 90% so you shouldn't have been charged the HLC in the first place

[gwenlillian]

Re: Mortgage Indemnity Insurance or Higher Lending Fees

I took this issue to the FOS and lost. Their reason for not upholding the complaint was that it was the broker's duty to spell out to me that I would not benefit from the HLC or MIG etc. They told me to make a claim of missselling against the broker. GMAC mortgages were always sold through an intermediary so this may be the case with you. If the HLC or MIG was stated clearly in the KFI then you will have little chance of success. I have not pursued my claim.

Are you saying the LTV on your mortgage was less than 90% so you shouldn't have been charged the HLC in the first place

Hi, my LTV is 90% and the criteria is OVER 90%, and the booklet says "up to and including 90% - no fee", over 90% would attract the fee. This is not just semantics as suggested to me by the FOS, this is real money to me so I am still pursuing this issue, especially with all the interest costs on this fee.
What they do is take the loan and add the fee to it and then say that the two together come to more than the 90% - well that is simply printing money

[gwenlillian]

Re: Mortgage Indemnity Insurance or Higher Lending Fees

Hi - been looking into this more and it appears that these high fees are based on 'perceived' risk, which begs the question for me, if the charge applied is meant to be covering the lender I can only see it 'covering' them if it was an insurance, and as an indemnity insurance that would be disallowed as consumers cannot take on their commercial risks, also, GMAC sold the product on within four months thus removing all risk anyway, and as it takes about 4 months to get the security into a securitisation deal/pool it must be that GMAC always intended, from the start, to pass it on, so where is this risk I paid so heavily for?

[PlanB]

Re: Mortgage Indemnity Insurance or Higher Lending Fees

GMAC sold the product on within four months thus removing all risk anyway, and as it takes about 4 months to get the security into a securitisation deal/pool it must be that GMAC always intended, from the start, to pass it on, so where is this risk I paid so heavily for?

That was precisely my argument to the FOS only a bit stronger. GMAC had 'sold your product on' before you even bought it. They were a 'Warehouse Lender' which means they had a deal with various lenders (mostly Mortgage Express, Kensington, MAS5 etc) who were contracted to take an average of 25,000 pre-packaged loan accounts per month from them. There was no risk to GMAC because you had been pre-sold.

I'll dig out my file and get back to you because I intended to pursue this one day (I've got six years from when I took out the mortgage).

[gwenlillian]

Re: Mortgage Indemnity Insurance or Higher Lending Fees

That was precisely my argument to the FOS only a bit stronger. GMAC had 'sold your product on' before you even bought it. They were a 'Warehouse Lender' which means they had a deal with various lenders (mostly Mortgage Express, Kensington, MAS5 etc) who were contracted to take an average of 25,000 pre-packaged loan accounts per month from them. There was no risk to GMAC because you had been pre-sold.

I'll dig out my file and get back to you because I intended to pursue this one day (I've got six years from when I took out the mortgage).

Hi - indeed, it is clear that there was no risk and in any event they had already charged a higher interest rate for perceived risk, so I have several issues with this 'fee', and note the following extract from a DJ case comment:-

"It is unacceptable to place their commercial risk on to consumers. Huge institutions are more than capable of absorbing this commercial risk. It is common for businesses to take commercial risks in trying to attract customers. You do not go in to Tescos and see buy one get one free offers subject to terms that you might be required to pay a fee later if you never buy their products in the future in order for you to cover their commercial risks. Also this is where Unfair Contract Terms Act s.4 comes in - a business can not impose a term that requires a consumer to indemnify their loss. This is subject to the requirements of reasonableness in s.11."

Also note that my lender contends it is nothing to do with them as the broker sold the deal, needless to say that broker has disappeared/gone bust having taken his commission plus a fee from me directly, having sold me a re-mortgage rather than the loan I was seeking, having told me it was this or nothing, presented only the one deal and no options and recommended me redeeming the current mortgage that had a huge ERC on it of £12,000.
The OFT say:-

OFFICE OF FAIR TRADING – Irresponsible lending and unfair business practices

ANNEXE 1 – CREDITOR'S RESPONSIBILITY FOR CONDUCT OF AGENTS AND THIRD PARTIES

The OFT considers that creditors should take appropriateresponsibility for acts
or omissions of brokers, debt recovery businesses (DRBs) and other
intermediaries or agents involved in the lending process. A broker may be a
business associate and/or agent of a creditor if the broker is tied to the creditor,
or has an ongoing relationship with the creditor, or frequently does business
with the creditor. This will be a matter of fact and degree. Similarly, the OFT
considers third party debt collection businesses that recover debts on behalf of
creditors may be business associates and/or agents of the creditors on whose
behalf they act. DRBs to whom creditors have assigned debts may themselves
become the 'creditor' under the agreement.

It is not for the OFT to specify in this guidance how creditors' choices about
third party selection are made nor to advise on desired conduct between
creditors and third parties. However, the OFT would expect creditors to take
reasonable steps to satisfy themselves that such persons are not engaging in
unfair business practices or acting unlawfully and to take care in selecting third
parties with whom to form business associations (complaints about any such
third parties to be considered by creditors and action to be taken by creditors in
respect of any such complaints as appropriate). If a creditor chooses to do
business and/or continues to do business with a third party which it suspects, or
reasonably ought to suspect, is engaged in behaviour which the OFT is likely to
consider to be inconsistent with fitness to hold a licence, its own fitness may be
called into consideration. We would consider licensed businesses simply ignoring
the unfair practices of those acting on their behalf - whether in-house or external
– to be inconsistent with fitness to hold a consumer credit licence.

(OFT1107)