Speaking at the Council of Mortgage Lenders' Annual Conference, Clive Briault, the FSA's retail managing director said that both liquidity and credit risks are sitting on shaky ground as we go into 2008.
As a result Briault has advised firms to put serious plans into place for the future.
"Firms should therefore be assessing their funding and liquidity positions; undertaking robust stress testing to reflect current and prospective market conditions; reviewing and assessing their medium and longer term strategies and the options open to them; and considering contingency plans against the worst outcomes."
He stressed that the regulator wants the market to retain its competitve edge and continue to meet the needs of consumers, even though business may be harder going forward.
"This requires lenders who have clear strategies - appropriately stress tested - that take account of the changing world, with viable funding models, and with boards and senior management that understand and know how to operate in the best interests of their customers in a variety of market conditions."
Where arrears and possessions are concerned, Briault announced that the FSA would be taking a harder line on lenders who did not treat their customers fairly.
"Arrears and repossessions have increased significantly, albeit from a very low base and concentrated in specific sectors of the market," continued Briault. "We expect lenders to meet the requirements on the treatment of customers in payment difficulties set out in our mortgages conduct of business sourcebook. Firms must have in place, and operate in accordance with, a written policy and procedures for dealing fairly with customers in arrears.
The FSA has already picked up on lenders who it says appear to be unwilling to consider cases on an individual basis and ultimately unwilling to agree a solution tailored to the borrowers individual circumstances.
Instead the regulator says it is adopting an unacceptable 'one size fits all' attitude to arrears recovery.
In response, the FSA will be launching a piece of 'firm-facing thematic work' on the arrears management practices of firms. This is designed to establish whether there is a problem of non-compliance with the regulator's rules themselves, and/or with the general principles of TCF.
Briault concluded: "Clearly, this needs to be done as a matter of some urgency, before any further increase in arrears rates, and we expect the initial phase to be completed by the end of March next year."
