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Wednesday, April 11, 2007

FSA Reviews Subprime Sector

The Financial Services Authority (FSA) is to launch an investigation into the subprime mortgage sector.

Specifically the FSA will examine whether customers who get into financial difficulty, after taking on a subprime mortgages, are being treated fairly by banks.

Yet another indication that, following on from the endowment shambles, the mortgage industry in Britain has something of an image problem.

The FSA will also look into lifetime mortgages, and related matters.

Subprime mortgages, aimed at people with poor credit ratings, have caused chaos in the USA as the number of repossessions and defaults rockets.

The FSA will publish its findings this June.

There are approximately 40 companies in the UK that handle subprime business. They account for approximately 6% of the UK mortgage market.

Dan Waters, director of retail policy at the FSA, is quoted in the FT as saying:

"This next stage of the mortgage effectiveness review will focus on more specialised sectors where we think there is greater risk of consumer detriment.

We will also look at the treatment of customers in arrears. The findings of the review will help inform our thinking about how we might apply a more principles-based approach to our mortgage rules
."

It shall be interesting to see how principles and mortgages can be "married".

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