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FSA warns lenders over sub-prime

  • 20/04/2007
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The FSA has warned lenders they must stress-test their lending processes in order to avoid the sub-prime catastrophe seen recently in the US market.

Speaking at the annual lunch of the Council of Mortgage Lenders, Clive Briault, managing director of retail markets at the FSA, told the assembled crowd: “It is important that all mortgage lenders undertake regular stress testing of their credit risks against shifts in external conditions, including movements in house prices, interest rates, and unemployment.”

Suggesting other specialist lending areas should also be subject to further scrutiny, he added: “Where lenders have significant exposures against sub-prime, buy-to-let and other specialist sectors of the market then they should take account of potential changes in economic conditions specific to these sectors.”

Briault also told the delegation of lenders that the regulator was still examining the issue of mortgage exit administration fees (MEAFs) closely. He commented: “Over 95% of lenders have now confirmed that existing customers will be charged a fee which is equal to or lower than the original fee that applied when the customer took out the mortgage,” but warned: “we will require the remaining lenders to justify the decisions that they have taken.”

He added: “I find it odd, for example, that no-one in so many firms spotted and questioned the unfairness – a legal as well as more general unfairness – of raising these exit administration fees. Or if they did spot this, who overruled them, and why?”

Having reinforced for the assembled delegates the key issues the FSA was focusing on, Briault concluded: “The UK mortgage market is an exciting and innovative sector but there will be more challenging times ahead-for all of us.”

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