Homeowners in mortgage arrears to get more protection under new rules

By Elliot Wright, 26th January 2010

Homeowners with mortgage arrears will get more protection from unscrupulous lenders under new proposals from the Financial Services Authority.

The FSA says it wants to ensure that lenders do not see mortgage arrears as an opportunity to profit from customers in unfortunate circumstances.

The city watchdog intends to protect those in mortgage arrears from lenders who are quick to repossess and levy crippling fees with little or no regard for the customer's financial difficulties.

The proposals are part of a mortgage crackdown by the FSA after it uncovered high levels of consumer detriment in the specialist - or 'bad credit'- lending sector.

Lesley Titcomb, FSA director responsible for the mortgage sector, said:"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."  

The FSA's new proposals to protect those in mortgage arrears include:

• Firms must not add early repayment charges onto any arrears charges, or charge interest on those charges;

• firms must not levy a monthly arrears charge if the firm and the customer have agreed a plan to repay the arrears;

• firms must consider all options for borrowers and use repossession as a last resort;

• payments by customers in financial difficulties must go to clearing arrears first, with arrears charges being paid off later;

• all telephone calls and records about customers arrears must be kept for three years.

The FSA also aims to protect consumers by removing dishonest mortgage advisers from the industry. Under the proposals, advisers and those who arrange non-advised sales will be accountable to the FSA and must prove they are 'fit and proper' for their role.

Dozens of individual brokers have already been suspended by the FSA over the past year for fraudulent behavior - typically by submitting falsified applications to lenders.

The FSA said: "Extending our Approved Persons regime in this area would reduce mortgage fraud and unsuitable advice by allowing us to prevent unfit or rogue individuals from entering the industry to ensure that consumers are better protected."

Useful links:

How to claim back mortgage arrears charges

Has your mortgage been mis-sold?

How to claim back unfair mortgage broker fees

Claims Financial