Tuesday, 29 June 2010

Mortgage advisers to be personally accountable

The FSA has announced changes to the way it regulates mortgage lenders including a move to make mortgage advisers personally accountable for the advice they give as part of the FSA’s commitment to intensive and intrusive supervision to ensure firms treat their customers fairly.

The FSA is particularly concerned about the practice of  'sale and rent back'. Property owners who are struggling with their mortgage can remain in their home by selling in this way but there is evidence that some companies are taking advantage of people in financial distress to acquire their homes and evict them shortly afterwards. The FSA is imposing superficial changes on the way that these offers are marketed but by imposing security of tenure for five years for customers entering into 'sale and rent back' deals it should succeed in deterring the more unscrupulous firms from seeking to capitalise on financial misery.

Similarly the FSA is trying to address the potential trap of mortgage arrears. Again there are a number of procedural changes for the mortgage lenders including mandatory recording of phone calls and the requirement for mortgage advisers to be 'fit and proper persons' but it is an accounting change that will make all the difference: "payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges".  It goes without saying that borrowers who are in arrears are having difficulty in meeting their monthly payment. The current accounting treatment that allocates payments firstly to arrears gives distressed borrowers a big extra burden, often insurmountable, in trying to bring their mortgage back under control. The change means that they will no longer face this additional handicap. Going further, the FSA is now insisting that lenders cannot impose a momnthly arrears charge at all when an agreement is in place with the customer to repay the outstanding amount. This will also make a real difference to borrowers struggling to cope.

Last year, 2009, was the worst for reposessions since 1995 so the FSA is tightening up numerous untidy practices in the mortgage lending business. It is the accounting change to mortgage arrears, though, and the security of tenure for 'sale and rent back' customers that will make the real difference.

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