Lenders must offer mortgage fairness
Watchdog finds weaknesses
The Financial Services Authority (FSA) has reiterated its call for fairness from mortgage lenders during the current challenging economic times for the UK property industry.
Recent research from the financial watchdog finds weaknesses in the way some lenders are handling arrears and repossessions, with particular regard to consumers with impaired credit histories, or so-called subprime borrowers.
The FSA have reported repossessions increased by 40 per cent over the first quarter of 2008, compared to the same period in 2007.
Furthermore, the total number of loans in arrears grew by 15 per cent in the year to quarter one of 2008, to stand at 302,000, accounting for 2.44 per cent of total loan book balances.
The data shows in these current market conditions more people are struggling to meet their mortgage payments and the FSA have called for firms to treat them fairly. The review was carried out to monitor the effectiveness of the FSA's regulatory regime of mortgage lending, seeking to address key issues in the mortgage sector and ensuring that consumers are treated fairly and that they can make informed decisions.
While mainstream lenders were found to be largely conforming to government and industry standards the FSA reveals problems with several specialist lenders. Specifically the FSA has raised concerns with regard to lenders operating a 'one size fits all' approach, focusing too strongly on recovering arrears according to a strict mandate, without reference to the borrower's circumstances. Some are also taking court action too soon.
The FSA’s programme of actions to address the problem areas includes a closer examination of charges, in particular the circumstances in which these are levied, and whether they are compatible with treating customers fairly (TCF) policies.
The FSA is also able to refer lenders to enforcement, carry out ongoing supervision to ensure lenders improve their arrears handling and support the Civil Justice Council (CJC) in proposal for a pre-court protocol.
Finally, the government body has also published a Good Practice guide to ensure lenders are aware of their responsibilities.
The Citizens' Advice Bureau (CAB) has welcomed the FSA's calls, claiming its own evidence shows in some cases lenders have taken borrowers to court without exploring all the other options available to address the arrears.
In the financial year 2006/07 CAB in England and Wales dealt with over 57,000 problems about mortgage and secured loan arrears, an 11 per cent increase on the previous year.
Furthermore, these problems rose by 35 per cent in the first two months of 2008 compared with the same period in 2007.
Putting forward the case for the lenders, the Council of Mortgage Lenders (CML) argues the industry is already doing enough.
"The CML is surprised at the FSA’s observations on specialist lenders, who have been working extremely hard to manage arrears, but urges the FSA to work constructively with those lenders to ensure there is shared understanding and agreement about the FSA’s requirements," read a statement from the industry body.
"The mortgage lending industry is making strenuous efforts to ensure that repossession is only taken as a last resort, when other realistic alternatives cannot be found that balance the interests of the borrower and the lender."
The CML argues lenders are doing enough, specifically:
"Providing information for consumers on their own arrears management process to help borrowers understand what to expect and how they will be treated fairly. "
"Contacting borrowers in good time when they are coming out of initial deals onto higher rates with increased monthly repayments, and encouraging them to make contact if a financial problem is likely to arise."
