Maturity of Interest-only Mortgages (MIOM) C3 & C4 lenders - - PowerPoint PPT Presentation

Maturity of Interest-only Mortgages (MIOM) C3 & C4 lenders thematic project overview

Council of Mortgage Lenders Interest-only Working Group

7 October 2014

Darcy Tallon & John Hindle

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Experian’s analysis – IO by maturity date

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The MIOM risk background

Thematic findings:

• 2.6m interest-only mortgages mature before 2041 including

600,000 by 2020

• Around half of these are modelled to have a shortfall
• 50% of the shortfalls are expected to exceed £50,000

Mitigation to date:

• Publication of FCA research findings with a strong message to

consumers ‘take action now’

• Industry pledge to contact all interest-only mortgage customers

with maturities by 2020, before end of May 2014

• Published industry guidance FG 13/7 setting out our

expectations for the fair treatment of affected interest-only customers

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Project background

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• A follow-up piece of conduct thematic work to establish how small lenders are

embedding the guidance in FG13/7 – “Dealing fairly with interest-only mortgage customers who risk being unable to repay their loan”, published in August 2013; and assess the treatment of interest-only maturity customers touched by the shortfall repayment issue

• Our work assessed 6 firms’ policies, procedures, strategies and management

information; and included on-site customer outcome testing

• The project population represents a small proportion of the overall interest-only
• market. It included building societies, non-bank lenders, a wholesale bank

(mortgage subsidiary), closed-books and firms using third party administrators (TPAs).

High level findings

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• Firms rising to the challenge and acting on our guidance;

firms to continue embedding to achieve consistently fair

• utcomes for their customers
• Flexibility seen, predominantly informal arrangements to
• verpay and/or temporary term extensions to accommodate

repayment

• Findings are encouraging, but it remains important for

consumers to work with their lenders to address early any potential payment shortfalls

• All firms had immature MI. Most firms understood that they

would need to expand their MI as data became available

Examples of good practice seen

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• Outbound mailings sent to customers with maturities before 2020
• Communication strategies developed that included several touch points and

follow-up phone calls

• Vulnerable consumers defined within policy and senior management signed
• ff solutions for these cases
• Senior management review a sample of post maturity shortfall cases
• Letters to customers that clearly outlined risks and options
• High response rates to mailings – 60-70%
• Good oversight and monitoring of TPA activities

Areas requiring further development

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• Strategies to engage with non-responsive customers
• Formal and informal contract variation processes
• Warning consumers on the risk of inaction
• Limited post maturity procedures
• Checking affordability for solutions
• Confirming solutions in writing
• Include arrears/payment shortfall handling in the interest-only strategy
• Presentation of options in a balanced way
• Quantifying the value of anticipated shortfalls
• Training & competency for maturing interest-only mortgage strategy

Next steps

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• The interest-only maturity risk is a long term risk

and so will remain a FCA priority – we will continue to monitor the mortgage back book

• Regular dialogue and meetings with firms and

trade bodies in order to understand progress and to share best practice

• Potential consumer research to understand

whether awareness of the interest-only maturity risk has improved

• Questions?

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