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Dividing lines

An FSA mortgage arrears handling review has brought calls for a clearer division between lenders and third-party administrators. Paul Thomas reports

The FSA has so far clamped down on two mortgage lenders over their mortgage arrears handling procedures and another six firms have been referred to its enforcement division.

Kensington Mortgage Company was fined £1.2m and ordered to pay £1m redress to customers in arrears who were charged unfair fees. Last October, GMAC RFC was fined £2.8m and ordered to pay £7.7m in redress for similar offences. Both lenders outsourced the management of their mortgage books to third-party administrator HML, which is owned by Skipton Building Society.

These cases put the spotlight on the division of responsibility between lenders and third-party administrators and on what can be done to make sure arrears are handled fairly.

Following a review of mortgage arrears’ handling last year, the FSA warned servicing firms that “third-party administrators should not hide behind service-level agreements or claim they are simply acting on behalf of the lender”.

Bill Warren Com-pliance managing director Bill Warren says lenders should take most of the responsibility but that third-party administrators should feel able to suggest improvements.

He says: “If the servicer thinks the processes are not working as they should be, it should be telling the lender.”

He adds that it is not excusable to hide behind service agreements with the lender. He says: “It is a slightly weak argument for servicers to say they are simply complying with their contract. One has to ask, if they are that reliant on the lender, should they have been offered the contract in the first place?”

Telos Solutions director Richard Farr agrees it is the servicer’s duty to flag up any unfair practices. He says: “If there are any issues or unfair treatment of customers, they are duty-bound to ensure it is reported back and the conditions are reviewed.”

Crown Mortgage Management chief operating officer Julien Holes says the thirdparty administrator has its own policies, and works to incorporate these into the lenders’ practices.

He says: “We have our own arrears and TCF policy and that is what we present to our lender clients. If they want to change those, we would do it in conjunction with them.

“But if we thought any of those changes would place us in breach of our obligations as a regulated entity, we would want the right to veto – which is built into most of our contracts.”

But Farr says it is important for lenders to keep up to speed with regulations and requirements themselves and not just rely on the third party.

He says: “You cannot just outsource your responsibilities. Things change all the time and regulation strengthens as time moves on. You need to keep abreast of what the regulator is saying, what its standards are, and carry out frequent reviews.”

Kensington Mortgages public relations manager Alex Hammond says the lender has adapted its outsourcing model to provide more help to customers in difficulty.

He says: “Given the economic environment, we felt the outsourced model did not offer the personalised level of service necessary for some customers. This is why we launched the special servicing team, to help people having payment difficulties on their mortgages.”

A HML spokeswoman adds: “Many servicers such as HML are directly regulated by the FSA and act on behalf of regulated mortgage lenders. We think it is important for outsourced mortgage service providers to demonstrate they possess the capability and flexibility to meet the demands of their clients.”


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