Specialist lenders criticised by regulator

The latest review from the Financial Services Authority (FSA) has found continued weaknesses in the way specialist lending firms and third party administrators are handling mortgage arrears and repossessions.

Four firms have been referred to enforcement for investigation and several more firms are being assessed for referral.

In many cases, the FSA found a high incidence of mortgages moving straight into arrears and potential breaches of responsible lending rules. All firms investigated will be required to take action to remedy failures identified in the arrears review.

This action comes as new data on mortgage lending shows the number of consumers facing arrears and repossessions continues to increase. It also follows two warnings by the FSA last year that failing to treat customers in arrears fairly was unacceptable.

The latest review focused on specialist lenders to the impaired credit market who are no longer lending, and on third party administrators contracted to handle mortgage arrears and repossessions work on behalf of lenders. It also looked at arrears charges and the treatment of borrowers whose mortgages have been securitised.

Lesley Titcomb, director responsible for the mortgage sector with the FSA, said in current market conditions it was vital that firms treated customers who fall into arrears fairly.

“It is unacceptable that some firms are applying fees unfairly and pushing customers towards repossession without considering alternatives. The steps we are announcing today demonstrate that proper handling of arrears is still a high priority for us and will continue to be so until the necessary progress has been made.”

Titcomb revealed follow up action was underway with a number of firms, adding that the industry as a whole could expect continued intensive scrutiny of its arrears handling processes.