Can you IMAGINE this level of regulation/government involvement being accepted in the U.S.? Although many of you probably are pretty opposed to the level of involvement already and are probably going to say we're already inches away from a similar policy... seriously, here's a wake-up call. The U.S. is NOT slipping into socialism.
(p.s. I don't consider Britain to be "socialist" either and don't think there is anything inherrantly wrong with government intervention, although I'm a bit split on this particular issue. Anyway, that's' for another post.)
Repossessions must be a 'last resort'
Grainne Gilmore, James Charles
THE TIMES - October 22nd, 2008
UK mortgage lenders will be forced to prove that they are repossessing Britons' homes only as a last resort under new rules announced today by the Prime Minister.
Gordon Brown has introduced new rules to clamp down on lenders that rush to repossess homes in a bid to recoup as much money as possible when homeowners are unable to meet their mortgage repayments.
Repossessions are expected to rise by 50 per cent to 45,000 this year, and are tipped to increase even further next year as rising unemployment, coupled with higher mortgage rates, push more homeowners into financial difficulties.
Northern Rock was recently accused of "aggressively" pursuing homeowners who are struggling to meet their mortgage bills. Credit Action, the debt charity, said Northern Rock has an "inflexible" approach to borrowers who fall into arrears and is seeking to repossess homes too quickly.
The Civil Justice Council has drawn up rules, which require lenders to examine all other alternatives with homeowners before they start repossession action.
Lenders will be encouraged to allow borrowers to take a repayment holiday of two or three months. Monthly repayments could also be lowered by extending the mortgage term or switching to an interest-only deal. The court also suggests struggling homeowners should be allowed to add mortgage arrears to their total loan. When a case reaches court, lenders will be forced to explain what other avenues they have tried to resolve the problem.
Yvette Cooper, Chief Secretary to the Treasury, said: "We need to make sure we help those who might be hardest hit in the tougher times ahead, ensuring repossession is the last resort, not the first."
Lenders are governed by statutory regulations from the Financial Services Authority (FSA) regarding how customers are treated during the repossessions process. It insists that lenders treat customers fairly and co-operate with borrowers who are struggling to make their monthly payments.
However, the FSA recently acknowledged that it was concerned with the practices of banks and building societies, particularly those who focused on sub-prime lending. Around 9 per cent of the mortgage market is taken up by sub-prime lending, according to the FSA.
Robin Day, of the FSA, said: “Specialist lenders in particular are focusing too much on arrears and were too ready to take court action.”
Housing charities have welcomed the new rules from the Civil Justice Council.
Adam Sampson, chief executive of Shelter, said: "Most lenders have aspired to act in this way but not all lenders have lived up to these standards in the past. The new rules will enshrine good practice and will have the effect of keeping more families in their homes, avoiding the misery of repossession."
In the past year, debt charities have been pushing the Government to introduce new rules to assist judges in repossession cases.
Sue Edwards, head of consumer policy at Citizen's Advice, said: "This timely introduction of a pre-action protocol for mortgage arrears will send a clear and welcome message to lenders outlining how to treat people in arrears fairly and ensure that court action is only taken as a last resort where all other options have failed and no agreement can be reached. It is an important and positive step to ensure best practice and we will be monitoring how it is implemented.”
The Council of Mortgage Lenders (CML), the industry trade body, has also announced guidance for banks and building societies in response to public concern about the growing numbers of repossessions, underlining the rules already in place
Michael Coogan, director general of CML, said: "The new guidance should help to reassure consumers that lenders are genuinely committed to seeing repossession as a last resort, and that the checks and balances that protect consumers are in place."
The Government has also moved to bring companies running sale and rent-back schemes under regulation by the FSA. These schemes have come under fire for not offering homeowners the full value of their homes and evicting tenants after a short time.
The Office of Fair Trading published a critical report on the sector last week and recommended regulation.