Mortgage firms face FSA inquiry

The Financial Services Authority is investigating three mortgage brokers that may have helped customers inflate their income to enable them to qualify for home loans.

The three firms have not been named by the regulator, which has been conducting a review of the sub-prime mortgage industry. This part of the market focuses on supplying mortgages to people who have bad credit records or irregular incomes.

The regulator said it had found "too many cases" where mortgage brokers were unable to show they had followed the required procedures when advising on mortgage contracts.

The FSA has visited 31 small brokers active in this market and looked in detail at 210 case files.

As a result three firms have been referred to the FSA's enforcement division.

In 80% of the cases it looked at the watchdog found there was a lack of evidence to show how the recommended product met the customers' needs and circumstances.

The FSA is now looking at the self certification mortgage market.