Independent review and analysis

Mortgage forbearance and impairment

On the 5th October the FSA published its final guidance on forbearance and impairment provisions following consultation and review of lenders arrears processes.

The review was designed for the regulator to understand forbearance strategies used by lenders, identify good and bad practice and ensure that clear and transparent reporting was in place.

The results of the review concluded that there was scope for improvement amongst lenders and mortgage administrators. It also set out what the FSA expects of lenders in relation to policies and controls and what current practices should look like, including the consistent reporting of impairment.

There was a need for the measurement of effective strategies and the identification of the level of risk attached, to monitor the loss risk of forbearance. The review focused on residential mortgage lenders and mortgage administrators and the FSA believe that it should be considered by those responsible for any aspect of forbearance activities, credit risk reporting, finance, audits and the compliance function within companies.

In the current climate, we do not see an end to the regulators focus on lender activities. Such reviews will continue, putting more pressure on internal audit and compliance teams to put their ‘house in order’ before the inevitable next review of some sort is announced. Some of that pressure can be mitigated by the selective use of skilled external audit teams with specific mortgage expertise.

Even before this recent guidance was issued, we have identified a number of ways to help lenders and holders of assets by reviewing their current policies and procedures to establish best practice.

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