Official nightmare report too small, too late with 47,000 still trapped in deals

It’s been 12 years since the financial watchdog proposed tougher rules to govern who lenders can give a mortgage to and how much they can borrow. After five years of discussions about what these rules should be, they finally came into effect in 2014.

In the meantime, of course, the lenders have cracked down on their own, having been badly burned by the high days of subprime mortgages and self-certification.

For those who needed a recap, in the worst cases it was when mortgage lenders offered borrowers with no income, no job and no assets, mortgages equal to 125% of the value of the property they were buying. – and borrowers only had to sign a form to say they would pay it back without having to specify how.

This week, after more than a decade in which tens of thousands of homeowners have been trapped in mortgages they can’t afford to pay – in some cases even if they had to sell the property because they have negative equity – the Financial Conduct Authority (FCA) has finally released the findings of its “prisoner mortgage” review.

According to the regulator’s estimates, around 47,000 people are unable to switch to a better mortgage deal in the UK, even if the change would see their monthly mortgage payments drop.

A quarter of them have loans that have been resold by their original lender to third parties, usually private equity firms, without authorization to offer new mortgages or refinance.

None of those 47,000 mortgage prisoners can change because, as the FCA notes, “they have lending and / or borrower characteristics that exceed the current appetite of lenders.”

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I want to be encouraged by the regulator’s release of all data on these borrowers “so lenders can determine where they can adjust their lending criteria (or use the flexibility of our rules) to lend to closed book borrowers who are about to meet their standard loan criteria at a lower rate or at a rate that allows them to fix their payments if they wish ”.

Indeed, the FCA even says that it “encourages” lenders to do so. Like I said, I want to be encouraged. But really, I’m just a little disappointed with the “so what?” »Conclusions. The reason this review was commissioned by the Treasury is because we already knew this was a problem and the regulator has already encouraged lenders to take on these borrowers. Lenders haven’t – and that’s because it makes good business sense not to.

Banks are not charities, or at least they weren’t charities until the onset of the credit crunch in 2008 forced many of them to become, effectively, benign institutions allowing people to live in their homes for free.

They did so because they were keenly aware that the banks were the source of the financial crash, that public opinion was extremely hostile towards them, that governments had been forced to bail them out and that the old ones were thrown away. ladies in the street may not have been handsome.

The government itself has actually exacerbated the problem of mortgage prisoners. By lobbing all the low-quality mortgages from a ‘bad bank’ and then selling them to private equity firms for between 25 and 90 pence on £ 1, they and others who also sold books Loans at huge discounts have ceded any incentive for companies to look after the personal and financial interests of these people.

Where mortgages still feature on bank balance sheets, I strongly suspect that lenders have dismissed the prospect that they will ever be set off and simply view them as fixed assets that will mature when terms end or customers die. Yes, die.

I’m not denying the detailed analysis done in this review – the more we know about these borrowers, the better. But it’s too little, too late. I don’t expect a lender who doesn’t have to volunteer to take bad risks. Even where it might be in the interest of the social good.

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