It is said that there are more questions on the application form to be a member of a lender’s conveyancing panel than there are to join MI5. Whether or not that is true, it is clear that if you want to do a good job for your homebuying clients, and act for lenders as well as your clients in any conveyancing transaction, chances are you will have to go through onerous vetting procedures now required by banks and building societies to be on their panels of approved solicitors.
Not only that, but you will have to go through different procedures for each lender. And if your firm has more than one branch, each office could be separately vetted, requiring you to upload certified documents, fill in questionnaires and be (personally) credit-checked. As one practitioner tells the Gazette: ‘Any solicitor will tell you that panel membership is an administrative nightmare.’
The only consolation is that the situation was even worse for conveyancing solicitors a few months ago. Since then, following negotiation with the Law Society and negative publicity concerning the effect of restricted panels on consumers, there have been some concessions by lenders. There is, however, still work to be done to improve the panel process for firms, to make it more open and transparent, and to try and consolidate the systems to everyone’s benefit.
The increased scrutiny by lenders of the solicitors’ firms which represent them in mortgage activities is indicative of a housing market which has been scarred by the global financial crisis. Financial transactions across all sectors are more tightly monitored and the risks more acutely managed. It is no surprise that the UK housing sector should feel the effects.
Lenders were also motivated to introduce new risk-management processes in the face of potential regulatory criticism or, possibly, enforcement action, following a Financial Services Authority report published in 2011. The report focused on lenders’ controls to prevent mortgage fraud. It stated that ‘lenders [have] some way to go to contain the threat of mortgage fraud’, and analysed the various areas of risk where lenders’ processes were not sufficiently robust, one of which was in their interaction with solicitors.
But solicitors’ firms appear to have suffered disproportionately as a result. The FSA report did not highlight solicitors as a risk priority, only that, as a third party alongside brokers and valuers, they should be scrutinised properly. But many solicitors agree that the open panel process which existed before had led to anomalies and needed streamlining (many firms on the lists simply did not exist and the lists were purported to have more than 20,000 firm names on them). Solicitors have been a soft target in the view of many.
Jonathan Smithers, a partner at Tunbridge Wells-based CooperBurnett and chairman of the conveyancing and land law committee at the Law Society, says: ‘It is all too easy to lay the blame at the door of solicitors. For instance, it is well known that a lot of mortgage fraud is to do with what is on the mortgage application forms, and that has got nothing to do with solicitors.’
In any event, some lenders did overhaul their panels by removing firms and introducing extensive application procedures to get on to – or to get back on to – a panel. The Law Society’s practice advice line was inundated by calls from concerned firms (as many as 80 calls a week at one stage) highlighting the fact that they had received no warning that they were being removed nor the reason for it.
Also, the mode of delivery was often abrupt or peremptory. One conveyancing solicitor, who wishes to remain anonymous, tells the Gazette that he applied for a redemption statement from a lender for a client as part of the mortgage process. The document he got back from the lender simply had a note at the bottom stating that the firm had been removed from its panel.
Stanley Jacobs, a sole practitioner in north London, was informed by Santander that if he wanted to be on that lender’s panel he had to pay a direct debit subscription as part of its annual review. He paid his fee to Santander, but a few months later was told that he was being removed from the panel. He complained but his appeal was turned down. Jacobs is now suing the bank for the fee – amounting to £118.80 – on the grounds of alleged unjust enrichment.
As the situation unravelled for so many firms, two things happened. The Law Society stepped in and began intense negotiations with the lenders. At the same time, there was negative publicity in the national media about how the situation was affecting consumer choice: there were stories of how restricted panels could reduce the options for homebuyers in less well-represented rural areas, as well as headlines on how it could double costs by forcing borrowers to have separate representation. This coverage was peppered with real-life stories of chaos ensuing where solicitors had discovered half-way into a transaction that they were no longer able to act for the lender, resulting in delayed purchases and increased costs for everyone involved.
Negotiations with the Law Society bore fruit. One way out of the problem was beginning to emerge; the Society’s accreditation hallmark, the Conveyancing Quality Scheme (CQS). Though critics have argued that the Law Society brand should be sufficient proof of a firm’s legitimacy, the CQS was a way of meeting the lenders half-way to create a so-called ‘trusted community’ which could meet the specific and tough standards required by lenders in a risk-sensitive mortgage market.
Or as Paul Marsh, former president of the Law Society, now with his own Surrey practice, Downs, puts it: ‘Certainly, the panels of the boom years were out of control; the system was not robust enough. There was too much money at stake and something had to be done. But we all needed to work together on this. The CQS is the first step towards that.’
The scheme gained credibility with lenders and momentum with firms by increasing its membership (it now has 1,800 members and 400 pending applications), which in turn helped it become a possible solution. During the course of 2012, lenders such as HSBC and Santander made concessions and now accept CQS-accredited firms. However, lenders take care to emphasise that CQS accreditation does not give firms an absolute right to be on a panel, because ultimately that decision rests with the lenders.
|The story so far|
|LENDER||PANEL PROCEDURE||APPEALS PROCESS||FEE|
|HSBC||Three different panel options:1. Panel managed by Countrywide. Not closed panel and others can join2. Panel of CQS-accredited firms but maximum transaction value of £150,000 for sole practitioners3. Borrower can choose any firm (i.e. that does not fall into 1 or 2) but separate representation||No||If a firm is on HSBC’s restricted panel, then there is a management fee as part of the fixed fee charged by firms to clients which the firm is then required to pass on to the panel manager|
|Lloyds Banking Group||Panel and vetting process managed by external supplier (including site visit to firm)CQS not a passport to membershipNo minimum partner requirements||Yes||No fee|
|Santander||Online form/vetting process managed by third partyCQS requirement (from March 2013 for existing panel members and now for new members) No minimum partner requirements||Yes||Application fee of £199Annual compliance fee of £99The fee does not guarantee a firm a panel place|
|Nationwide||Assessment process (CQS not a passport)No minimum partner requirements||Yes, but need to be CQS- accredited to bring an appeal||No fee|
As it stands now, firms know a lot more about lenders’ panel practices. Some lenders have yet to take up the CQS. Lloyds Banking Group, with a panel of about 4,000 members, has its own vetting process. A group spokesperson explains: ‘Our approach over the past year has been to surgically vet all panel firms and remove only those that we have deemed high-risk or which refuse to participate in the process as a result. This vetting process led to a reduction in panel size of a very few per cent.’ Royal Bank of Scotland also follows its own process and says it applies ‘criteria and procedures internally to establish who [we] conduct business with’.
What is clear is that panel management is not static. Lenders are reviewing panels on an ongoing basis. Nationwide, which has a similar number of firms on its panel to Lloyds, says it ‘constantly reviews [its] panel’. Similarly, Yorkshire Building Society says that ‘the panel status of existing member firms is periodically reviewed against... criteria’. Looking ahead, the Law Society continues to be in dialogue with all lenders. It appears that lenders also recognise the importance of that dialogue; RBS says it ‘works closely with the Council of Mortgage Lenders, The Law Society and the Solicitors Regulation Authority’.
Certainly, there are still issues that need to be ironed out. One of the biggest problems is the disproportionate impact which the tight management of panels could have on sole practitioners. There is a perception among lenders that firms with one or a few partners pose a greater risk; so some lenders impose direct or indirect obstacles for very small firms.
For instance, Nationwide says that although it does not have a requirement for a minimum number of partners for a firm to be on its panel, it does ‘remain concerned and vigilant that in some cases there are more limited recovery options when losses occur due to solicitor negligence in smaller firms’. Solicitors argue that sole practitioners are not a greater risk. Marsh says: ‘Whether you are a robust and well-managed firm has got nothing to do with size.’
Chancery Lane stresses that the Conveyancing Quality Scheme (CQS) provides a recognised quality standard for residential conveyancing practices. Achieving membership establishes a level of credibility for member firms with stakeholders (regulators, lenders, insurers and consumers) based upon:
the integrity of the senior responsible officer and other key conveyancing staff;
the firm’s adherence to good practice management standards; and
adherence to prudent and efficient conveyancing procedures through the scheme protocol.
The scheme ‘creates a trusted community which will deter fraud’. For more information see the Law Society website.
A linked problem is that posed by lenders imposing minimum volume requirements. Lloyds, which does not have a requirement for a minimum number of partners, does review the number of transactions a firm has done over a given period. A spokesperson argues: ‘We know that firms that regularly transact with the group’s brands are more familiar with our processes, policies and requirements, which benefits the group and its customers. We do regularly review the position of some firms that represent us very infrequently.’ Nationwide expects panel firms to be ‘active in the market’, which it defines as ‘three Nationwide mortgage cases in the past 12 months’.
But practitioners argue that volume is not within a firm’s gift and often the lender does not take into account other mortgages with other lenders with which a firm may have dealt. Nationwide does concede that the criteria could be unfair on particular homebuyers and so makes exceptions ‘for rural constituencies, specific markets or where market volumes are high but Nationwide cases are low’.
Then there is the application process itself. Lenders do have appeals processes, but one issue which has arisen is whether a firm can remain on the panel pending an appeal. One solicitor tells the Gazette about a firm they knew which had been taken off a panel and entered an appeal. During the appeals process the firm was not reinstated and so lost the business. The client’s purchase was in disarray; the damage was done. Two overriding concerns remain. First, that firms remain in the dark about what lenders’ criteria are for deciding on panels. As Smithers says: ‘Every lender is entitled to construct a panel of its own choosing, but we would like to see an open and transparent process.’
Second, there are just too many different systems at play and a simplified process would benefit solicitors, lenders and homebuyers. One way to achieve this would be through the CQS. Denis Stevenson, managing director of Rowlinsons, says: ‘A uniform system whereby solicitors can provide the information to all lenders in one go would benefit everyone. The CQS has already collated that data and I see it as providing the basis for lenders to access all the information they need about solicitors.’
Continuing to get the message across to homebuyers that a fair and functioning panel process is good for them will also help conveyancing firms. They could do worse than remind consumers of what Smithers believes is a truly remarkable house-buying process: ‘The conveyancing market is very sophisticated and, considering the millions of transactions involved, runs extremely well indeed. Most of it is based on, and made possible by, honest, hard-working solicitors who rely on undertakings with each other so that money flows very efficiently and, for the borrower, incredibly cheaply. Let’s not undermine that and let’s not forget.’
Polly Botsford is a freelance journalist