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Banks cornered over mortgage arrears concerns

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The FSA has accused the banks of trying to mask the true scale of the problem of mortgage arrears. We all know of people up and down the country hanging on by a thread. What we do not know is just how big this problem is.

The apparent compassion is understandable. It is important to avoid the mass repossessions of the early 1990s. They also have precious little choice but to be accommodating in many instances, given that so many of the lenders are state-backed. There is pressure from the Government to keep repossessions down and it has launched initiatives of its own to help keep people afloat.

But the FSA is right to be concerned about lifelines offered by the banks. Too many people are simply delaying the pain for another day, accumulating even more debt before they lose their home anyway. According to FSA figures, as many as 300,000 customers have switched £60bn worth of mortgage debt to interest-only payment plans since late 2007. In the case of one lender, 95 per cent of all people who applied to switch to interest-only mortgages were in financial difficulties. This is not sustainable. All it will take is one little interest rate rise.

Even more alarming is that this practice is covering up the banks’ exposure to bad debt. Are they no longer haunted by the words “toxic debt”? Does negative equity no longer put the fear of God into them? America is facing a double dip, with property prices at 2002 levels. In some areas of Britain, the same double-dip scenario is emerging, with several experts suggesting a further 10 to 15 per cent drop over the next 12 to 24 months.

The FSA has ordered “a tougher stance on forbearance practices” from the banks’ auditors. It says: “We require firms to report accurately and transparently the impairment of their mortgage book.” The regulator accepts, however, that arrears support provided with due care “…has a beneficial impact for both the firm and the customer”. Herein lies the problem for the banks – they have no alternative but to carry on as they are, keeping repossessions at bay in the hope the tide will turn. If not, there will be a flood of repossessions.

Dominik Lipnicki is director of Your Mortgage Decisions

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. FSA/PN/106/2010
    25 June 2010

    says “Today’s announcement demonstrates the FSA’s commitment to intensive and intrusive supervision to ensure firms treat their customers fairly.” and that firms must “Firms must consider all options for borrowers. Repossessions should always be the last resort”

    FSA words, not mine.

    And now, not nine months later they are whingeing that banks are using forebearance to avoid loans going into arrears and there being too few repossessions.

    ..and there you have the Isle of Dogs lunatic asylum in a nutshell. Within nine months, they are moaning about…the problems they themselves caused and blaming everyone but themselves. What a monumentally expensive waste of time.

  2. Interest-only mortgages were only allowed, if there was a suitable repayment vehicle in place – yeah right!

    When all this mortgage lending nonsense was going on, where was the regulator. Anyone with even a scrap of money sense could have told them this was all going to end in tears.
    It will take years for this to eventually sort itself out. Employment, low inflation and careful rate rises will help but some people are already doomed because they are too far in debt. You will probably find that mortgage arrears are also on top of loans and credit card debt which ultimately will bring the household down. The FSA is and has been in charge of regulating much of UK lending for many years. Why do so many financial advisers feel they could have done a better job – because they live in the real world!!!

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