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Thursday 25th of February 2010
June 24, 2009    

Sub-prime lenders too focused on recovering arrears

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by Gill Montia

The Financial Services Authority (FSA) has reported on its recent review of sub-prime lenders who are closed to new business, and on the third parties they instruct to handle mortgage arrears and repossessions.

The study found that both were operating “an approach focused too strongly on recovering arrears without reference to the borrower’s individual circumstances”.

Failings included being too ready to take court action and imposing arrears-related charges unfairly.

According to the regulator, lenders in this sector are not exercising sufficient oversight of the firms they employ to handle arrears and repossessions.

In addition, where loans have been sold on in the form of securities, covenants were sometimes in place that restrict the scope of 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.

The FSA director responsible for the mortgage sector, Lesley Titcomb, said: “It is unacceptable that some firms are applying fees unfairly and pushing customers towards repossession without considering alternatives.”

She adds: “Follow up action is underway with a number of firms and the industry as a whole can expect continued intensive scrutiny of its arrears handling processes.”

The issues identified will be included in the FSA’s comprehensive Mortgage Market Review, which will form the basis of a discussion paper due to be published in September.

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