Mortgage News
Has lender forbearance gone too far?
I recently ran my first marathon and, now that my aches and pains are beginning to die down, I’m able to reflect on the experience and it occurs to me that hindsight really is 20:20.
Would I still have gone for the run which lead to me getting injured? Or had those few beers the night before my last long run? Probably not, but at the time they seemed like a good idea.
In the same way, it is easy to blame lenders for offering forbearance when it turns out that the borrower wasn’t able to get back on their feet and eventually ended being repossessed.
Over the course of the economic slowdown, we saw pressure being put on lenders by government to offer forbearance to those getting into difficulty meeting their mortgage payments.
It seems fairly obvious that those borrowers who have experienced a temporary loss in income or increase in expenditure should be given a break by their lender while they get back on their feet.
The problem comes when the borrower fails to get another job as quickly as they had intended to or can’t sell the property as they had planned, because the bottom fell out of the housing market.
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The FSA has just picked up on this thorny subject and issued a consultation, in essence asking when is it better not to offer forbearance?
Choosing not to offer forbearance to a borrower in difficulty is a tough judgement call for lenders. The natural instinct is to err on the side of caution and for a lender to do what they can to help a borrower.
But with new guidance on the horizon looking at balancing the consumers’ short and medium-to-long-term interests, the water is going to become very muddy.
Similarly, having progressed down the forbearance road, how does a lender say, ‘we are stopping forbearance because we don’t think your situation is recoverable’ and at what point does this become a self-fulfilling prophecy?
Clearly, when to forbear and when to begin repossession proceedings is a tricky and emotive issue and, unfortunately, the right course of action may only become clear in hindsight.
Whilst all of this discussion will continue, particularly as speculation abounds as to when interest rates might rise, none of this should indicate that mutuals will be offering any less forbearance to borrowers in difficulty.
Mutual lenders, as they have always done, will continue to make the best decisions for their members with the information they have available at the time.
Paul Broadhead is the head of mortgage policy at the BSA