Firms that buy mortgage books must be FSA regulated

26 January 2011 | By Natalie Thomas

As part of the measures third party administrators and firms that buy mortgage books will now need to be regulated by the Financial Services Authority.  

The government says there is evidence that a growing number of mortgage lenders are selling their mortgage books, either to limit losses or raise funds, or because they want to exit the UK market.

It says the buyers in these cases are often hedge funds and private equity firms, attracted by the chance to purchase assets at a significant discount.

The government says it has evidence that some borrowers may be treated unfairly because their mortgage has been sold on to an unregulated firm as part of a mortgage book sale, a decision over which they had no choice or control.

The government has identified in the market for the onward sale of mortgage books risks of negative externalities impacting on mortgage borrowers.

Its intention is to mitigate the risks of market failure in order to achieve a fair, stable and efficient market in mortgages.

It says this would be achieved by ensuring that the firm which interacts with the mortgage holder, for example by notifying them of changes in interest rates or payments due under the contract, must be regulated by the FSA.

This could be either the purchaser of the mortgage book or a third party administrator appointed by them.

The measures also include the transfer of the regulation of new and existing second charge residential mortgages from the Office of Fair Trading to the Financial Services Authority and the extension of the current regulation of the sale and rent back market to all providers.

Paul Broadhead, head of mortgage policy at the Building Societies Association, says: “In principle the measures announced by the government today are sensible. Any tightening of the underwriting criteria of first charge mortgages, through rules imposed by the FSA, has the potential to drive customers to other forms of credit, such as second charge mortgages. These loans are often more expensive and are subject to a different regulatory structure.

“Bringing second charges mortgages under the FSA remit will help ensure that there is consistency in regulation and could make it simpler for consumers.

“The BSA is also supportive of the proposed regulation of firms that purchase mortgage books and the expansion of sale and rent back criteria, to prevent consumer detriment in this market.”

But he says the the HM Treasury announcement today adds to the weight of regulatory proposals the FSA needs to consider.

He adds: “As we have consistently stated, it remains vital that the FSA assess in detail the cumulative impact of all the proposals to prior to pressing ahead with implementation, particularly to ensure that the revised regulations facilitate the desired outcomes for UK consumers.”

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