News and Press
Arrears Handling and Approved Persons: the first proposals under the Mortgage Market Review

On 26 January 2010, the Financial Services Authority (FSA) published its proposals under the Mortgage Market Review (MMR). This follows the MMR Discussion Paper (released in October 2009) that identified several issues, which the FSA believes have led to consumer detriment in the UK mortgage market. The relatively quick publication of these proposals indicates the FSA's haste to now effect material change.

The FSA has focused first on outlining its proposed changes to mortgage arrears, which are aimed at strengthening and enhancing current requirements.

The proposals in summary are:

• Where the firm and the customer have agreed an arrangement to repay arrears, firms must not apply extra charges.
• Repossession must only be a last resort.
• Firms must not apply early repayment charges.
• Firms are required to record telephone calls as part of the arrears handling process, which should be kept for 3 years.
• Payments made by customers in arrears are to be allocated first to clearing missed payments.

The FSA sets out its intention to extend the scope of the AP regime in the mortgage market, as a way of tackling mortgage fraud, unsuitable advice, and to more robustly regulate mortgage intermediaries in part two of the Consultation.

Suzanne Macdonald, head of TLT’s Financial Services Regulation team says “The resulting rule changes, whilst representing a tougher stance by the FSA, mainly reinforce current guidance and early signs are that they are broadly welcomed by the industry. The extension of the AP regime, it is hoped, will go some way to helping identify and prevent organised mortgage fraud. A view from the Council of Mortgage Lenders, however, is that the FSA has underestimated the number of mortgage sales advisers who will be affected. This undermines the FSA's cost benefit analysis and means that implementation may be more expensive than indicated, which will come as ominous news to lenders and brokers already working hard to manage costs.”

Feedback on both sets of proposals is welcomed until the consultation period ends on 30 April 2010. The FSA expects to publish a Policy Statement in June 2010.

For more information, please contact Suzanne MacDonald.