Financial services regulation and COVID-19 video diaries: TCF considerations for mortgage lenders and administrators

Welcome to the next in our video-from-home series on COVID-19 and its impact on financial services firms. I wanted to focus briefly today on the announcements that the government made to support customers who may struggle with mortgage payments in the current situation, and some things that firms can think about in relation to this.

So a quick recap of the announcement. On 17 March, the Chancellor announced an agreement between the government and mortgage lenders, to offer the option of a three-month payment holiday for customers who have struggled to make their mortgage payments as a result of the Coronavirus outbreak. There was also the commitment made to consumers that the government would not expect anyone to lose their homes through repossession during this challenging period also.

Following this, the FCA confirmed these announcements in guidance for firms. So what does this mean for them and what should they be thinking about?

At the highest level, regulatory expectation has not changed. Firms are still required to adhere to principle 6 of the FCA's principles for business, that is to pay due regard to the interests of their customers and to treat them fairly and if anything this is more important than ever given that the outbreak has brought greater uncertainty to lives of the entire population and increase the likelihood of customers becoming more vulnerable.

So let’s explore some things firms should be thinking about in relation to these two areas. Firstly, the payment holiday piece and secondly the halting of repossession proceedings. So with respect to payment holidays, the regulator expects firms to either offer one to customers where they have expressly requested one or whether dialogue with customers indicates that they may need one as a result of the current situation. So we see there being five important things to think about in relation to this guidance.

1. Having dialogue with customers who are experiencing payment difficulties continues to be key. It is really important to understand customer circumstances as this situation is complex and evolving. It may be that a payment holiday is right for some customers, however, forbearance tools may be more suitable for others given their situation.
2. Clarity of that dialogue with customers is really important. So what I mean by this is firms must ensure that their customers know that they have options and these must be explained in a way that they understand. Customers will also need to understand the implications as well as the benefits of any forbearance option, so for example, if a payment holiday is granted it’s likely that interest will still apply and when payments resume they may be higher than they were previously to take account for the payment holiday period.
3. Maintaining dialogue with customers during the period of forbearance is also important. As mentioned earlier the situation is continuing to evolve and customer circumstances can change at any point as a result.
4. Think about MI reporting. This is really important from a couple of perspectives. Firstly, it can help with forecasting how many customers are likely to require support in some way, payment holiday or otherwise. Secondly, it can help the business to plan and resource up its customer servicing functions as higher call volumes come into contact centres and thirdly, it’s also important in terms of informing the future forbearance strategy. So what I mean by this is it can tell you how successful forbearance intervention has been in supporting customers in the past. To inform them and refine these as the crisis unfolds.
5. Finally, governance. Given the profile of the crisis it’s likely the boards are meeting regularly to discuss the impacts and the firms response. You should think about how key decisions are recorded with appropriate rationale documents that are a result of these meetings, which is an important thing to think about in demonstrating reasonable steps in this post SMCR world.

Turning to the second component of the regulators guidance, relating to repossessions, their guidance is very clear. Firms should not start or continue repossession action against customers at this time. Importantly this applies irrespective of the stage of the repossession proceedings may have reached and regardless of whether the customers income has been affected by Coronavirus. Also, where firms have obtained a possession order, they should refrain from enforcing it at the current time.

So there are three important things to think about in this regard:-

1. Again, customer communication is key. So notifying customers promptly that repossession action will be halted and for how long this will be the case is important. These communications must also set out why this is happening, the implications of doing so, and what options are available to customers. The regulators guidance has suggested that customers can elect to proceed with repossession on a voluntary basis, for example, where the customer believes it may be in their best interests and alternative appropriate accommodation has been found. However, this is not expected to be the norm.
2. As we know, repossession is very much a last resort so consider whether there are other options that could support customers as an alternative even at this late stage – waiving fees or freezing interest may provide customers with further relief, for example.
3. It is important to think to the future as part of business and operational planning, so pausing repossession proceedings for a period of time may mean that certain staff who previously worked on repossession matters could be redeployed to support customer service functions during what is expected to be a busier than normal time over the short term. Also, give some thought to how the business will transition back to a more BAU state when restrictions and repossession action will be lifted and how this will happen in practice.

To conclude, the regulator has said that it will re-visit this guidance and the impact it has had by the end of June of this year, so if you’re a mortgage lender or an administrator expect the regulator to be in touch to ask how you are operating in accordance with this guidance.

That’s all I wanted to cover today. Should you wish to discuss the things that I’ve talked about in this video, or any other regulatory conduct matters, don’t hesitate to get in touch.

Thank you.