The Report notes that both mortgage arrears and repossession levels are on an upward trend and that both are expected to continue rising over the next few years as a result of the recession. The Committee acknowledges that many mainstream lenders are taking pro-active steps to support consumers in mortgage difficulties, but expresses concern at the lack of flexibility and forbearance shown by some lenders in the sub-prime, specialist and second charge sectors towards homeowners in arrears.
John McFall, Chairman of the Committee said: "Losing the family home is one of the most distressing experiences a family can go through. We have heard harrowing tales of households struggling to keep their heads above water in an attempt to avoid repossession. The next few years are likely to see the number of families in mortgage difficulties rise steeply. This is why it is so important to ensure that lenders are complying with the rules to only use repossession as a last resort and that the FSA is enforcing those rules properly.
The Committee was extremely concerned by evidence that many sub-prime, specialist and second charge lenders are using repossession not as a tool of last resort, but instead of first resort. This is clearly unacceptable - the FSA and the OFT must get a grip on this problem and crack down on lenders who are breaking the rules and mistreating customers in arrears."
The Committee shares the concern expressed by many of those who gave evidence to its inquiry that some lenders are charging high and excessive mortgage arrears fees to customers who fall into mortgage difficulties. The Report voices concern that in many instances such charges appear to go beyond the recovery of additional administrative costs and are being used instead as an alternative profit stream.
The Report describes such practices as ‘intolerable' and calls upon the FSA to take a much more robust stance towards tackling and eliminating unfair arrears charges. As a first step, the Committee recommends that lenders should be required to provide an itemised breakdown of the additional costs their arrears charges are supposed to cover. In the Committee's view this would help shed valuable light on whether such charges are reasonable and justifiable, as industry representatives claimed was the case amongst mainstream lenders. Alongside this, the FSA and OFT should review all mortgage arrears charges made by mortgage providers and secured lenders to determine whether they are reasonable.
John McFall, Chairman of the Committee said: "We have heard evidence of charges as high as 35 pounds from some lenders for simply sending a letter or making a phone call, and charges as high as 150 pounds for a visit from a so-called ‘debt counsellor.' Such practices are intolerable and are placing additional financial as well as emotional strain on those already struggling to keep a roof over their head.
We suspect that the small number of cases being brought against lenders making excessive arrears charges are merely the tip of the iceberg. This is why it is so important that lenders are compelled to open up their books and justify their charges, while the FSA must be prepared to take decisive action where it finds evidence of wrongdoing."
The CML said it welcomes the Treasury Committee's findings that the majority of lenders are taking pro-active steps to support consumers in mortgage difficulties.
Lenders already show significant forbearance to borrowers facing temporary difficulties, to enable them to keep their homes where this is possible. This was evidenced by the CML's first quarter possession figures not being as high as we might otherwise have expected.
Repossession is a last resort. This is underpinned by FSA regulation and through the pre-action protocol in the court system. And we have issued comprehensive industry guidance and consumer information to help the industry and borrowers identify fair practices. These mechanisms apply to all first charge lenders, whether mainstream or not.
We share the Committee's view that the FSA should take action in the small minority of cases where there are any legitimate findings of poor practice.
The position on fees and charges for those in arrears (as set out by the FSA) is that they must reflect the actual work carried out without a profit element and that they should be transparent.
It is important to recognise there is a cost to the lender for the additional work when managing mortgages that go into arrears and it is fair to charge for that work. Lenders need to employ staff to liaise with borrowers, to monitor the ongoing situation, and they may also incur legal costs. If lenders do not charge the borrowers who are in difficulty for these costs, they would be borne by all customers. Each firm's cost base will differ so it is not straightforward to say a specific figure is "fair" or that higher charges are "unfair".
CML head of policy Jackie Bennett said: "The industry is fully engaged to help its customers through the recession where they have a good prospect of being able to get back on track and sustain their home-ownership in the long term. Repossession remains a last resort.
"Lenders have worked hard to ensure that treating customers fairly is at the centre of their arrears management. This doesn't necessarily mean that consumers won't be charged, but it does mean that the charges will be a reasonable reflection of costs and that they will be applied in ways designed not to exacerbate the borrower's financial problems.
"We will be publishing our arrears and possessions figures next week. These are likely to demonstrate further that lenders remain committed to helping borrowers who fall into difficulty, where those borrowers are talking to their lenders and committed to helping themselves."
