The U.K. government announced new rules that will better protect homeowners facing repossessions. This after a call from several U.K. charities highlighted that nationalized banks were aggressively and recently pursuing the option.
The "Pre-Action Protocol" was published by the Civil Justice Council last week, following a lengthy consultation process with industry participants, consumer rights groups and government ministries.
Lenders commencing repossession actions will be expected to demonstrate that they have discussed alternatives with borrowers, and that repossession is a last resort. The Protocol applies to first and second charge mortgages, as well as unregulated mortgages.
The recommendations under the Protocol are that lenders should consider reasonable requests to change payment dates, respond promptly to borrower proposals, and consider postponing repossession actions where the borrower is pursuing a demonstrably credible claim pursuant to a mortgage payment protection plan, or marketing the underlying property at a reasonable price having taken professional advice.
The Protocol is a nonbinding statement that basically restates the Financial Services Authority (FSA) Mortgage Code of Business Rules regarding the need to treat customers fairly, which has been in practice since 2004, according to Deutsche Bank analysts.
"As far as we can see therefore, there is not much in the new guidelines to prevent a lender from pursuing a delinquent borrower to the full letter of the law," analysts said. "Moreover, unlike for consumer loans or credit card debt, U.K. courts have very limited jurisdiction to reschedule mortgages, and the Pre-Action Protocol does little to change this. Indeed, it explicitly states that the parties' rights and obligations under law are not altered."
The Protocol will do little to affect growing repossession rates in the broader U.K. mortgage market. In the subprime mortgage market, where the repossession process is faster compared with the bank-dominated prime mortgage space, the new guidelines should provide more lenient timeframes, analysts said. This will potentially have some effect on slowing down foreclosures, although the impact will be marginal.
"Fundamentally, we cannot see lenders adopting the new Protocol if it means risking higher loss severities ultimately," analysts said. "This focus on preserving recoveries should mean that the new repossessions will have minimal incremental impact on RMBS portfolios outstanding."
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