FSA's bite fails to match bark over rising repossessions
SUBPRIME and specialist mortgage lenders will always be associated with the cycle of excess that led to the credit crunch. Consequently, you would expect their activities to be closely scrutinised by those responsible for cleaning up the mess to which they contributed so impressively, if unwittingly.
When it comes to repossessions, however, anecdotal evidence suggests otherwise. The Financial Services Authority has done little to prevent firms who sold loans to high-risk borrowers from kicking those customers out of their homes with brutal haste when repayments look like drying up. The watchdog has barked, but it has failed to show its teeth when the bite was needed.
Its inertia on this issue has not gone unnoticed, with the Treasury select committee recently giving it both barrels over its handling of subprime and specialist lender repossessions.
But the latest repossession and arrears figures add new urgency to the problem. Repossessions may have shown a slight decline, but arrears continue to climb and it doesn't take a genius to work out which direction this trend will take once inflation and interest rates rise again.
The good news is that the mainstream lenders are, on the whole, becoming more flexible when it comes to dealing with borrowers falling behind on their mortgage payments. Those that were acting to repossess as soon as a borrower had missed the third consecutive monthly payment are now holding fire, although in many cases it constitutes only a stay of execution.
It's quite different at the other end of the spectrum, however, where we have the specialist and subprime firms that lend to "high-risk" borrowers, usually those with impaired credit histories.
More than a year has passed since the FSA expressed concerns over they way in which specialist lenders (including companies that bought the loans from those lenders and now "own" the mortgages) were handling repossessions. Back then, the FSA told lenders that repossession had to be a last resort only and threatened companies which treated borrowers unfairly that they risked either heavy fines or a ban.
After 12 months in which the problem has escalated significantly, precious little has happened. Research earlier this year by a panel including Citizens Advice and Shelter found that specialists lenders were reaching for the possession orders at the very first sight of a default on a mortgage, and there's no evidence of any improvement in recent months.
Last month the watchdog finally got around to acting on this issue, with four firms found to be taking court action too quickly and imposing unfair arrears charges.
However, the FSA has failed to back up its tough words by doing more to protect families from being kicked out of their homes.
Specialist lenders may only account for a small chunk of the mortgage market – their share of the market fell from 7 to 2 per cent last year – but their customers are among the most vulnerable to repossession. The FSA's inconsistency is letting specialist firms get away with forcing families towards repossession before they have had a chance to reach alternative arrangements.
ANOTHER month, another mountain of drivel for the dwindling army of Equitable Life policyholders to digest. Sir John Chadwick this week published his government commissioned report outlining how the long-suffering victims of the debacle could be compensated.
The 33-page report includes some impressive looking algebraic formulas, presumably constructed to eliminate any chance of even one policyholder getting more compensation than they merit.
Chadwick's proposals encouragingly call for a quick solution to the compensation puzzle, acknowledging the stress suffered by those who lost money in the insurer.
But the notion of his system producing a speedier result will seem laughable to the 1.5 million policyholders who have already waited for the best part of a decade without getting so much as a sniff of compensation.
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