Mortgage lenders accused of using repossession as a ‘first resort’

August 17, 2009 at 6:40 pm 3 comments

A committee of MPs has said that “many sub–prime, specialist and second charge lenders” are using repossession not as a tool of last resort, but instead of first resort.

The Treasury Committee report on households affected by the recession concluded that mortgage arrears and repossession levels are on an upward trend, which is expected to continue in the next few years.

The committee said that mainstream lenders are, broadly speaking, complying with the FSA’s mortgage conduct of business rules.

“Indeed, we have heard positive examples of some mainstream lenders taking pro-active steps to support consumers in mortgage difficulties,” they said.

“We are extremely concerned by evidence of a lack of flexibility and forbearance in the sub-prime, specialist and second charge sectors to homeowners in arrears.

“We recommend that the FSA monitors the forbearance policies of mortgage lenders to ensure that repossession is only a tool of last resort.”

The Financial Services Authority’s “seemingly leisurely approach in terms of completing its mortgage arrears review and enforcing possible breaches in the rules in the area of mortgage arrears is a matter of grave concern.”

The committee want the FSA to spell out clearly in its mortgage market review how it will improve its performance in terms of bringing miscreant firms to book.

“We share the serious concern expressed by many of our witnesses that some lenders are charging high and excessive mortgage arrears fees to customers who fall into mortgage difficulties,” the committee reported.

“Such practices are intolerable, placing additional strain on homeowners already struggling to keep up with their mortgage payments.

“We note that the FSA has already referred four mortgage firms to enforcement action and understand that part of the case against some of these firms is based on excessive mortgage arrears charges.

“We suspect these cases represent the tip of the iceberg and call upon the FSA to take a much more robust stance towards tackling and eliminating unfair arrears charges.

“The FSA’s principles-based approach in the area of mortgage arrears has given far too much flexibility to lenders to interpret the rules as they wish.

“The consequence has been a wide divergence in practice amongst firms with consumers treated in an inconsistent manner and little way of establishing whether they are being treated fairly.

“Currently the FSA only publishes the names of firms it has found guilty of wrongdoing once enforcement action against the firm has been concluded.

“The industry has told us that it supports the continuance of this approach, although others have argued that this places the interests of lenders ahead of those of consumers.

“We have concerns that the balance between disclosure to the public and the need to protect firms before they have been found guilty of wrongdoing has tilted too far towards the interests of the industry.”

The Government’s new schemes to support homeowners in mortgage difficulties were welcomed by the committee, but they recommend a re-examination of its longer-term strategy to ensure that adequate mechanisms are in place once the current downturn has ended.

“The Mortgage Rescue Scheme has directly benefited just six households, despite being designed to assist upwards of 6,000 households,” they said.

“We call upon the Treasury and the Department of Communities and Local Government to explain why their projections for participation in the scheme appear to be so out of step with the picture on the ground and request analysis as to whether this reflects flaws in forecasting, poor design of the scheme or lack of consumer demand.

“More needs to be done to help credit-worthy first time buyers access credit.

“It is likely that restricting some first time buyers has negative effects on an already depressed housing market.”

Click here to read the report.



Entry filed under: Committees, Commons. Tags: , , , , , , .

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