The Financial Services Authority has announced a new set of measure to ensure the fair treatment of borrowers who fall into mortgage arrears.
The FSA is tackling the unfair treatment of borrowers in mortgage arrears as a priority since problems in this area were highlighted by the Mortgage Market Review last year, which uncovered a high level of cases where mortgage customers were not treated fairly.
The new proposals will mean that firms must not add early repayment charges on arrears charges and the interest accumulated by those charges; no arrears charges must be made when a repayment agreement has been made between a borrower and their lender; lenders must consider all options available to borrowers, and only use repossession as a last resort.
Under the new rules, customers who are in financial difficulties must be allowed to pay off their missed monthly payments as a priority; their payments must not be used to pay off arrears charges, which can be repaid at a later date.
Regulation of the mortgage market will be tighter – all mortgage advisers and those who arrange mortgage sales on a non-advised basis must prove that they are 'fit and proper' for their role and will be individually accountable to the FSA.
The FSA believes that by extending its approved person regime, dishonest individuals will be vetted from the mortgage market, helping to protect customers and create "a strong, viable and clean marketplace."
Lesley Titcomb, the FSA director responsible for the mortgage sector, said of the new measures: "Today's proposals underline the standards that firms must meet and will help to ensure that homeowners in financial difficulties are 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."
Reacting to the FSA's announcement, Peter Vicary-Smith, chief executive of consumer watchdog Which? welcomed the FSA's steps to improve the mortgage industry, but he believes it could do more "to protect consumers who face the threat of losing their home by naming the firms it is currently taking enforcement action against. This will ensure that judges have all the facts available when hearing repossession cases."
The head of consumer policy at Citizens Advice, Sue Edwards said of the proposals: "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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