FSA Issues Warning As Mortgage Arrears Rise
The UK’s financial watchdog has said Mortgage firms should treat customers fairly as the number of homeowners facing arrears and repossessions rises.
The Financial Services Authority’s comments came as it reported a 40% rise in new cases of repossessions in the first quarter of 2008 to 9,152.
In the same period the number of home loans in arrears rose by 15%.
The watchdog warned a flexible approach was needed from lenders when recovering these arrears.
“More people are struggling to meet their mortgage payments and it is vital that firms treat them fairly,” said Lesley Titcomb, of the FSA.
“This means paying attention to their individual circumstances and not repossessing their homes when there may be an alternative solution. Repossession should always be the last resort.”
Mortgage squeeze
The figures, drawn from data provided by regulated mortgage lenders and administrators, also gives more evidence of the squeeze on the availability of mortgages.
New lending peaked in the third quarter of 2007, but the share of new lending being used for loans for house purchases has fallen since then, the data shows.
The proportion of mortgages where homeowners borrowed more than 90% of a home’s value fell from a peak of 15% of new lending in 2007 to 10% in the first three months of 2008.
But the percentage of borrowers with a poor credit history has fallen.
“We believe these new figures paint a terrifying picture showing real people - hard-working families, young first-time buyers and even renters - all living in the shadow of repossession and ultimately homelessness,” said Adam Sampson of charity Shelter.
The FSA should tackle “merciless mortgage lenders”, he added, as there was concern that some lenders might try to pursue a repossession rather than try to work out a solution.
‘Fair treatment’
It is the first time that the FSA has published figures in this way.
It has asked specialist lenders not to operate a “one size fits all” approach that was too focussed on recovering arrears without taking account of the borrower’s circumstances.
It added that some were too quick to take court action and needed to improve training on dealing with mortgage arrears.
The watchdog also followed up on a review of 250 firms offering mortgage advice.
More evidence of whether customers were able to afford repayments was needed, the FSA found.
Seven small mortgage advisers are also likely to face enforcement action after the review.
Repossessions
The Council of Mortgage Lenders (CML) says that there are 11.8 million mortgages in the UK that are currently being paid off.
However, it has predicted that, with more of us feeling the pinch due to the credit crunch, there will be 45,000 repossessions in 2008, up from 27,100 in the previous year.
The growing numbers are partly the result of rising house prices in recent years, which gave lenders an interest in encouraging people to sell.
With high mortgage repayments, and rising household food and fuel bills, the number of people missing payments on their home loans is rising.
The Ministry of Justice said in May that the number of people facing repossession orders - an early stage of the repossession process - rose by 17% in the first quarter of the year.
There were 27,530 orders in the quarter, up from 23,438 during the same period in 2007.
The government said it was doing more to help those in financial trouble, such as extending free debt advice services and free legal representation at county courts.
“The rate of repossessions is not on the same scale as in early 90s. But that doesn’t mean we don’t recognise the problems that some borrowers are facing because of global economic pressures,” said a Department for Communities and Local Government spokesman.
There was also some better news for new borrowers as a number of the major lenders have also cut their interest rates for new fixed-rate mortgages in recent days.
FSA Demands Tougher Mortgage Fraud Action
The (FSA) Financial Services Authority has told lenders to tighten up their defences against mortgage fraud.
This year alone it has banned or fined 17 mortgage brokers who have been implicated in making actual or potentially fraudulent applications.
The regulator says it is monitoring 200 more broking firms to ensure they have sufficient checks in place.
And it also warns that certain lenders may not be guarding themselves against fraud with sufficient diligence.
“The FSA continues to take very seriously the question of whether lenders’ systems and controls for dealing with mortgage fraud are proportionate to the risk,” said Philip Robinson, director of the FSA’s financial crime and intelligence division.
“We are likely to take particular note of cases where weaknesses in due diligence and customer checks - or in outsourced relationships with third parties - may have contributed to a heightened mortgage fraud risk,” he warned.
Easy Credit
The FSA’s call for tougher defences against fraud is targeted at the whole mortgage industry, including the British Bankers’ Association (BBA) and the Council of Mortgage Lenders (CML).
The regulator says the problem became widespread in recent years because of “easy credit conditions and a cut down application processes.”
The FSA is currently liaising with many police forces around the country in its efforts to stop criminals defrauding lenders by making bogus applications for home loans.
The CML’s director general, Michael Coogan, welcomed the tougher stance.
“People may not think of lenders as victims of crime, but unless fraudsters are tackled then honest customers are the ones who end up paying more,” he said.
“We expect that even more lenders will now participate in the voluntary initiative designed to identify and investigate broker fraud,” he added.
Tip Offs Wanted
Since 2006 the FSA has been asking lenders to report suspect mortgage brokers to it.
It has received more than 300 tip offs so far, but is disappointed that only 35 out of the UK’s 150 lenders have made any reports to the authorities.
It now expects the rest to fall into line.
Despite the downturn in the property market in the past year, and the slump in mortgage lending caused by the credit crunch, the FSA warned that the problem of mortgage fraud could revive along with activity in the market.
And it says it may require senior staff at mortgage brokers to become individually approved by the regulator, something which is not necessary under current regulations.
