Firms must not add early repayment charges on top of arrears charges as part of a raft of measures designed to ensure the fair treatment of mortgage holders in arrears.
In its latest consultation paper - part of the FSA's ongoing Mortgage Market Review (MMR) - the regulator also clarifies firms must not apply a monthly arrears charge where the firm and customer have agreed an arrangement to repay the arrears.
The FSA says it hopes its proposals will help to ensure mortgage holders in arrears are treated fairly, and reinforce its tough stance in its battle against mortgage fraud.
It also confirms it plans to extend its approved persons regime to include mortgage advisers, a measure first announced in last October's MMR.
The key arrears proposals:
- Make plain that firms must not add early repayment charges on arrears charges and interest levied on those charges;
- Compel firms to consider all options for borrowers. Repossessions should always be the last resort;
- 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.
"Today's proposals underline the standards that firms must meet and will help to ensure that homeowners in financial difficulties are treated fairly," FSA director for the mortgage sector Lesley Titcomb says.
"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."
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From 1 March