CML news & views
Issue no. 23 - 1 December 2008
Equity buffer helps borrowers in arrears
Many lenders are already carefully assessing their arrears management policies in the light of industry guidance we published in October to help reinforce the use of possession of the property only when all other options have failed.
At the end of November, the Financial Services Authority wrote to lenders requiring them to review and report back on arrears management by the end of January. For most lenders, however, this work was already under way following publication of our guidance.
The FSA’s earlier thematic work had already concluded: “Mainstream lenders were largely complying with FSA requirements and have policies and practices that should ensure that customers are generally treated fairly.” We do, however, support the FSA’s view that it is not just the policies but the practices of individual lenders that need to deliver fair treatment for customers and ensure that possession is avoided where an alternative can be found.
This applies to extending a period of forbearance to borrowers in difficulty to give them a chance to sort out their problems. In a large number of cases, borrowers will be able to remain in their home for six months or longer while they work with the lender on implementing a plan for paying off their arrears.
In other cases, however, where there is little or no equity in the property and no chance of the borrower getting back on his feet in a short period, it may be in the home-owner’s best interests to move towards selling the property rather than allowing arrears to build up over a long period.
In response to the FSA’s letter, we issued the following statement:
“Lenders understand that in the current difficult economic environment there is bound to be a high level of scrutiny of their handling of mortgage arrears. Borrowers facing difficulty deserve to know that their lenders have the right measures in place to treat them fairly and try to help them keep their homes wherever this is an achievable outcome.
“That is why we and our members have been working on a voluntary basis to the same goals as the FSA in this important area.”
