The FSA says lenders’ forbearance strategies are masking the true extent of the number of borrowers in arrears.
According to the regulator, there is an increasing trend for lenders to capitalise arrears, meaning that rather than treat arrears as separate outstanding payments, they are rolled into the total of the loan.
In some cases, arrears are being capitalised after just three months, with borrowers charged a lower payment rate and no recovery of past arrears.
The FSA is carrying out supervisory work on techniques such as capitalisation used by lenders as part of their forbearance strategies.
FSA mortgage policy man-ager Lynda Blackwell said last week: “Lenders are exercising forbearance strategies, which are helping to mask the true extent of the problems. We have seen lenders capitalising borrowers’ arrears at an increasingly rapid rate.”
An FSA spokeswoman says: “It is not a practice that is banned per se but lenders can use capitalisation to make the arrears picture slightly better, so you do not get a true reflection of how many people are in arrears. We are trying to make sure that the arrears cases are dealt with rather than making borrowers end up in more debt overall.”