The latest review from the FSA has found continued weaknesses in the way specialist lending firms and third party administrators are handling mortgage arrears and repossessions.
Four firms have been referred to enforcement for investigation and several more firms are being assessed for referral. In many cases the FSA says it has found a high incidence of mortgages moving straight into arrears and potential breaches of responsible lending rules.
The latest review focused on specialist lenders to the sub prime market who are no longer lending, and on third party administrators contracted by the lenders. It also looked at the treatment of borrowers whose mortgages have been securitised.
This review follows two letters sent by FSA retail managing director Jon Pain in 2008 to all lenders and administrators, warning them to make sure to treat customers in arrears fairly.
But the latest review found that some lenders and servicers have been operating an approach focused too strongly on recovering arrears and have been too ready to take court action.
It says there is also evidence of some firms imposing arrears-related charges unfairly and specialist lenders not exercising sufficient oversight of contracted adminstrators.
And it also found terms in securitisation covenants which could restrict the scope for the lender to exercise flexibility and forbearance, for example by prohibiting an extension of the loan term, or conversion to interest only for a period.
FSA director responsible for the mortgage sector Lesley Titcomb says: “In current market conditions, with our data showing more people struggling to meet their mortgage payments, it is vital that firms treat customers who get into arrears fairly.
“It is unacceptable that some firms are applying fees unfairly and pushing customers towards repossession without considering alternatives.”
Exact Mortgages managing director Alan Cleary says: “Third party servicers are still applying a one-size fits all approach to arrears management and frankly, it’s inexcusable. Arrears have been rising for more than a year – it’s not as though the sharp rise in the number of people needing help with their mortgages has come as a bolt from the blue.
“Lenders and servicers must stop burying their heads in the sand. We need the exact opposite of one size fits all in this market: we need tailor made. Lenders and servicers must get under the skin of their arrears situation. Knowing the borrower’s financial circumstances now is the key to helping them mend their arrears fairly.
“There’s been a sea change in the mortgage market and many lenders and third party administrators will struggle to implement the changes required of them. Current third party administrators have major systems issues.”