I thought we were all adamant that risk had to be properly priced?

Mortgage lenders must not profit from arrears charges, the Financial Services Authority has decided,

But if someone is in arrears then their loan is more risky (by definition) thus the price charged should rise: precisely because someone is in arrears you should be making a larger profit to cover the higher risk.

Does the FSA know what it\’s doing?

6 thoughts on “Eh?”

  1. Hmmm….

    This is a funny one: the higher price is, obviously likely to compound the problem for the existing lender. By the time you’ve got into arrears, you’re not talking about *risk* – the risk has already happened, so you’re into mitigation of the damage and trying to limit the degree to which the debt goes really really bad. Difference between insurance and assurance sort of thing.

    However, it IS relevant for any future lenders: the borrower is now in a higher risk category as they have history of failing to meet payments. Any future lender must/ought to be able to take this into account. (though I wouldn’t put it past the morons at the FSA to screw this up too).

  2. If there is no cost to the borrower then you will get more people going into arrears. Can’t get a cheap loan for a new car or need money for a holiday? Solution: skip some mortgage payments.

  3. Brian, follower of Deornoth

    Answer: The FSA haven’t the slightest idea what they are doing. The only question left about the FSA is whether any of them can find their arse with both hands.

  4. Messrs Deornoth and Miller,

    Actually I think the FSA know full well what it is doing.

    It’s the public who are being kept in the dark about its NuLabour mandated mission – destroying the only productive sector left in the British economy.

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