The regulator reveals the review in its final rules at the end of a lengthy response to industry criticisms of its last consultation paper on the ongoing management of interest-only loans.
It says in feedback lenders were particularly concerned about:
- What would constitute reasonable efforts to contact borrowers
- What actions they should take if a shortfall is discovered
- The significant costs involved in checking out the repayment strategies, especially for larger lenders
- And, the risk that mid-term contact might result in a perceived further transfer of responsibility from the borrower to the lender
In response, the regulator says the mid-term review of repayment strategies was not conceived as a panacea to any problems that might have occurred and not did intend the onus for solving the problem to lie with the lender. And exactly what classifies as ‘reasonable efforts’ to contact the borrower it says is up to lenders to determine and demonstrate.
The FSA says: “If the mid-term check reveals a problem with the repayment strategy, it is the responsibility of the borrower to bring it back on track. As explained in Q26, all we expect a lender to do at the time of underwriting is to assess, as far as it is reasonably able to do so, that the repayment strategy has the potential to repay the capital, and nothing more.”
But it says it may be a limited benefit to a mid-term check with a mortgage with a very short term, so it is also disapplying this requirement for bridging loans.