Consultant Zone

Controlling mortgage forbearance

The recently published FSA consultation paper on forbearance (loan modification) and impairment provisions in relation to mortgages has attracted a vast amount of comment about how it could lead to greater clarification on the issues of forbearance for lenders.

However, on a basic level we wonder if all lenders know just what percentage of their mortgage book has had a loan modification on it, whether the lender collated all the relevant information to make the correct decision in the first place and whether there is a regular and appropriate review process?

Unfortunately in our experience, we have found at some lenders there are insufficient guidelines or quality controls in place to enable the members of staff to make an accurate judgment call. As a result some of those lenders are struggling to put accurate data together to identify exactly what their loan modification exposure is.

Nevertheless, some lenders are no longer ‘burying their heads in the sand’ but are implementing strategies, using our knowledge and expertise, to help them review their data and rebuild their decision making processes. We have recently been carrying out reviews of mortgage portfolios focusing on arrears and types of loan modifications for both holders and potential sellers of mortgage portfolios.

It seems to us that lenders are paying closer attention to detail on this topic than most others at the moment in the knowledge that it is ultimately critical to understand their risk exposure.