Single Lender Cascading

Industry experts warned, “This practice could be the biggest area of mis-sold mortgages creating compensation feeding frenzy not seen since the endowment mis-selling scandal”.

What is Single Lender Cascading?

This is when a lender’s range of products caters for different criteria and has interest rates applicable to each section of qualification.  For example, if a Credit Reference Agency (CRA) search showed that more than one default or County Court Judgment (CCJ) was recorded, when only one was disclosed in the fact find, a higher interest rate may apply, thus the broker may advise his client (i.e. the borrower) that the product has cascaded.  Put simply, the borrower did not qualify for the rate offered on one product but because of the additional adverse credit, they qualify for a different one from the same lender. In practice the rate is going up. However, cascading means or implies ‘falling’. 

What happens in reality is the best rates normally start at the top and get higher as you look down the list of products available from the lender.  Products and criteria should ‘cascade’ both up and down as the reverse may apply.  Perhaps there was not as much adverse lending risk and a better rate would (and should) have been made available to the applicant.

In reality, this was often not the case.  Brokers operated limited ‘specialist’ lending panels and not ‘whole of market’.  They may not have been allowed access to exclusive products or certain lenders panels. They may also have had a ‘preferred’ choice of lenders. It was also very time consuming to input the client data into several lenders online software which provided products choice and lending decisions. 

This is where mortgage packagers were popular; they provided the service to brokers. However, mortgage packagers rarely offered multi-level cascading or comprehensive lender panels. A Financial Services Authority (FSA) survey in late 2006 revealed that 80% of loans sold had no evidence of sufficient market representation being used when making responses to applications for specialist or sub-prime mortgages.

The practice of single-lender cascading was easier for brokers and widespread, many borrowers have paid the price for higher rate loans, sometimes with even higher reversion rates (i.e. rates charged after the initial rate comes to an end) and no way of remortgaging as they have struggled to keep up repayments on a high rate loan.