01/10 FSA sets out new steps to reduce mortgage fraud

Financial services and regulation alert email

The FSA has published a consultation paper, entitled: "Mortgage Market Review: Arrears and Approved Persons" (CP10/02). This sets out a package of measures that reinforces the FSA's tough stance in its battle against mortgage fraud and will help to ensure that mortgage holders in arrears are treated fairly.

The proposals strengthen existing rules on arrears handling - one of the urgent issues flagged in the Mortgage Market Review discussion paper last October.

The key arrears proposals:

• clarify that firms must not apply a monthly arrears charge where the firm and the customer have agreed an arrangement to repay the arrears; 
• compel firms to consider all options for borrowers.  Repossessions should always be the last resort; 
• make clear that firms must not add early repayment charges on arrears charges and interest levied on those charges;
• confirm that payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and 
• oblige firms to record all arrears handling telephone calls and to keep all records for three years.

New proposals will also mean all mortgage advisers and those who arrange non-advised sales will be individually accountable to the FSA, and need to demonstrate they are 'fit and proper' for their role.

Consultation on these proposals will close on 25 April 2010.

Commenting, Lesley Titcomb, Director Responsible for the Mortgage Sector at the FSA, said:

"[Lenders] must realise that such circumstances are not an opportunity to create further profits."