FSA sets out new rules on mortgage arrears

Wednesday, 27 January 2010 11:03

By Matthew West

The Financial Services Authority (FSA) has produced a package of new measures designed to stop mortgage lenders treating borrowers who fall into arrears as money making opportunities.

The City watchdog has set out a number of new rules to combat lenders taking advantage of borrowers who get into difficulties by adding hefty penalties for missed mortgage payments as well as toughening up the requirements people need to meet in order to advise on mortgage sales.

Mortgage lenders will be stopped from adding early repayment charges on arrears charges and interest.

They will also no longer be allowed to apply a monthly arrears charge where they and the borrower have made a payment arrangement for any arrears.

And lenders will be compelled to consider all options for borrowers to help them get out of difficulty with repossessions being only ever a last resort.

Moreover, mortgage lenders will also have to ensure that payments they receive from borrowers in financial difficulties are used to clear missing monthly payments, rather than arrears charges, which can be repaid later.

And lenders will be required to keep records of all phone calls made that deal with the collection of arrears for up to three years.

Meanwhile, the new proposals also mean those that working for lenders directly in the arrangement of mortgages will become individually accountable to the FSA. As a result they will need to demonstrate they fulfil the regulator's 'fit and proper' person requirements. The new requirement is an attempt by the FSA to ensure that dishonest mortgage brokers who they have already been banned from advising on mortgages cannot re-enter the industry and arrange mortgages for customers through bank branches.

Lesley Titcomb, FSA director responsible for the mortgage sector, said the proposals underlined the standards that firms must meet and would help to ensure homeowners in financial difficulties were treated fairly.

"Lenders need to be in no doubt of their obligations to customers who fall behind with payments and must realise that such circumstances are not an opportunity to create further profits," she added.

The proposals come just days after a Times investigation revealed one mortgage lender had been ordered to repay millions to customers it charged for getting into arrears over a period of four years between 2004 and 2008.

Specialist mortgage lender GMAC-RFC was fined £2.8 million by the FSA and was told to repay £7.7 million to customers it had charged up to £45 a month for getting into arrears.

The FSA said this was "excessive" and did not reflect administration costs.

According to the Times investigation thousands more customers could be due repayments as the FSA is still investigating the actions of several other mortgage lenders over the same period.

Meanwhile, consumer groups welcomed the new proposals. Head of consumer policy at the Citizens Advice Bureau, Sue Edwards said: "We are very pleased with today's FSA proposals which strengthen existing rules on how lenders handle mortgage arrears.

"In December 2009 we published a report which found that whilst recent government packages for supporting homeowners were making a difference, in a third of recorded cases lenders had failed to comply with new rules requiring them to take court action only as a last resort after offering borrowers other options for dealing with their arrears.

"In particular we welcome the clarification that lenders must not apply monthly arrears charges where they and the borrower have agreed repayment arrangements; that the FSA compel lenders to consider all options before repossessing and the confirmation that arrears payments made by borrowers must be allocated to clearing missed monthly payments first, before they pay off charges.

"The strengthening of these existing rules will help protect vulnerable homeowners from avoidable homelessness and we hope to see them implemented as soon as possible."

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